LLC vs S-Corp in Virginia

Virginia has a tiered personal income tax that tops out at 5.75% on taxable income above $17,000, set by Va. Code § 58.1-320. That top rate hits most full-time trade shop owners, so the LLC vs S-corp decision in Virginia does affect state tax, not just federal. The Virginia State Corporation Commission (SCC) handles the entity filing. The IRS handles the tax classification via Form 8832 and Form 2553. A Virginia LLC can elect to be taxed as an S corporation. Virginia LLC basics. - Articles of Organization filed with the Virginia SCC under Va. Code § 13.1-1011. - Filing fee is $100 under Va. Code § 13.1-1005. - Annual registration fee is $50, due by the last day of the twelfth month after the month of formation, under Va. Code § 13.1-1062. There is no separate annual report for an LLC in Virginia. The $50 registration fee is the annual obligation. - Single-member LLCs default to disregarded entity for federal tax. Multi-member LLCs default to partnership tax. Either can elect S corp treatment with Form 2553, and Virginia follows the federal election. Virginia S corp basics. - Virginia's corporate income tax rate is 6% on Virginia taxable income. C corporations file Form 500. Pass-through entities including S corps and multi-member LLCs file Form 502. - Virginia treats an S corporation as a pass-through entity. Corporations that have elected S status federally are automatically treated as S corporations for Virginia purposes. The S corp itself generally pays no Virginia corporate income tax. Income flows through to shareholders who report it on their Virginia individual returns at the personal rate schedule (top rate 5.75%). - Virginia has no separate franchise tax on LLCs or S corps. The $50 LLC annual registration fee is the only recurring state entity fee for an LLC. - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. Virginia withholding and unemployment tax (Virginia Employment Commission) apply once the business crosses the employer thresholds. Why a Virginia trades shop might elect S corp. The main driver is federal self-employment tax savings. A disregarded-entity LLC owner pays self-employment tax on the full net profit. An S corp owner-employee pays payroll tax on wages only; the distribution portion avoids self-employment tax. Virginia state tax treatment is pass-through either way, so the S corp election does not change state liability materially. The savings are federal. Rule of thumb. Start as a Virginia LLC ($100 to file, $50 per year). When annual profit after a reasonable owner wage is high enough that federal payroll tax savings clear the added payroll, retirement plan, and accounting costs, elect S corp. A CPA with Virginia construction clients can run the breakeven for your numbers and confirm the SCC and Virginia Tax filings.