One of the choices you’ll need to make if you’re starting a business in Minnesota is whether or not to set up a S corporation. S companies are a preferred option for small business owners because they offer the advantages of pass-through taxation and limited liability protection. This article will cover the taxation of S corporations in Minnesota, how to form a S corporation there, the distinction between an LLC and a S corporation, what counts as a S corporation, and the S corporation tax rate for 2021.
Because S companies are pass-through businesses, the business’s gains and losses are distributed to the shareholders and recorded on their individual tax returns. S companies are not subject to state income tax in Minnesota. S corporations are nevertheless liable to Minnesota’s corporate franchise tax, which is a charge for the right to conduct business there. 9.8% of the corporation’s Minnesota net revenue is the corporate franchise tax rate in Minnesota. How Do I Form a S Corporation in Minnesota?
You must do the following actions in Minnesota in order to form a S corporation: 1. Pick a name for your corporation and check the Minnesota Secretary of State’s availability. 2. Submit articles of incorporation and pay the filing fee to the Minnesota Secretary of State. 3. Obtain all business-related licenses and permissions that are required.
6. Submit Form 2553 to the IRS to elect S corporation status. 5. Obtain an Employer Identification Number (EIN) from the IRS. 7. Sign up for tax reasons with the Minnesota Department of Revenue.
Your business’s objectives and requirements will determine whether you choose an LLC or a S company. S corporations provide more tax advantages and limited liability protection, however LLCs are more flexible in terms of management structure and profit sharing. The best decision for your company will ultimately depend on your unique circumstances and ambitions. What Constitutes a S Corporation?
The company must satisfy the following criteria in order to be eligible to become a S corporation: 1. Exist as a domestic corporation 2. Only permit shareholders, such as persons, certain trusts, and estates;
4. Limit the type of stock to one
2021 S Corp Tax Rate
For 2021, the S corp tax rate is the same as the rates for personal income taxes. Individuals in Minnesota pay a marginal tax rate ranging from 5.35% for income under $27,230 to 9.85% for income over $164,400. S companies are exempt from Minnesota’s state income tax.
S companies, in conclusion, provide many benefits for Minnesotan small business owners, including pass-through taxation and limited liability protection. Understanding how S companies are taxed and the procedures required to establish one is crucial if you’re thinking about forming one in Minnesota. You can decide whether a S corporation is the best option for your company by following the recommendations provided in this article.