LLC vs S-Corp in Oregon

The LLC vs S-corp question in Oregon is 2 questions stacked on each other. Oregon Secretary of State handles the entity type (LLC, corporation, sole proprietorship, partnership). The IRS handles the tax classification (disregarded entity, partnership, S corporation, C corporation) via Form 8832 and Form 2553. You can be an Oregon LLC that is taxed as an S corporation. That is what most profitable trade shops eventually do. Oregon LLC basics. Oregon LLCs file Articles of Organization with the Secretary of State. Check the current filing fee on the Oregon Secretary of State business registration page linked below. Oregon LLCs file an annual report each year to stay in good standing. Single-member LLCs default to disregarded-entity tax treatment. Multi-member LLCs default to partnership tax treatment. Either can elect S corp treatment with Form 2553. Oregon S corp basics. An Oregon corporation or Oregon LLC can elect S corp tax status by filing IRS Form 2553. An S corp pays its owner-employee a reasonable salary (W-2 wages subject to payroll tax) and distributes remaining profit as a shareholder distribution (not subject to self-employment tax). The savings relative to a disregarded-entity LLC show up once the business is profitable enough that the payroll and compliance costs are smaller than the self-employment tax saved. Oregon-specific tax notes. - Oregon imposes a corporate excise tax on C corps and on S corps doing business in Oregon. There is a state minimum tax on corporations tied to Oregon sales. Check the Oregon Department of Revenue link below for the current minimum tax tiers. - Oregon's Corporate Activity Tax (CAT) applies separately on top of income tax once a business exceeds $1 million in Oregon commercial activity. Base tax is $250 plus 0.57% on taxable commercial activity over $1 million. Most new trade shops do not hit this threshold in year 1. - Oregon has a pass-through entity elective tax that allows qualifying entities to pay state tax at the entity level, which can help owners get around the federal $10,000 state-and-local-tax cap. Ask your CPA whether your entity qualifies for the current year. Rule of thumb. Start as an LLC. When profit after reasonable owner wages is high enough that the S-corp payroll tax savings outweigh the added payroll, retirement plan, and CPA costs, elect S corp. A CPA with construction clients can run the breakeven for your numbers.