How to Start an S Corp in South Dakota

Is an S Corporation the Best Strategy for Your Business?

For help with choosing the right structure for your business, visit ourChoosing a Business Structureguide.

S Corporation Restrictions

S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read ourWhat Is an S Corporationguide for full details.

Are S Corp Tax Advantages Right for You?

An S corporation is a tax designation that can be elected by a limited liability company (LLC) or corporation. With an S corp, business owners are considered employees of the company and must receive areasonable salary. Since all S corps technically have employees, the s corp must run payroll.

In order to benefit from a South Dakota S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take largedistributionsin addition to their salary.

To learn more about the tax advantages of an S corp, read ourLLC vs. S corpguide and take a look at ourS Corp tax calculator.

Steps for Forming an LLC and Electing S Corp Status in South Dakota

Starting a South Dakota LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider likeNorthwestto guide you through this process.

There are five basic steps to start an LLC and elect S corp status:

Step 1:Name Your LLC

Step 2:Choose a Registered Agent

Step 3:File the Articles of Organization

Step 4:Create an Operating Agreement

步骤5:Get an EIN and File Form 2553 to Elect S Corp Tax Status

Step 1: Name Your LLC

Choosing a company name is the first and most important step in starting your LLC in South Dakota.

Be sure to choose a name that complies with South Dakota naming requirements and is easily searchable by potential clients.

1. Follow the naming guidelines for a South Dakota LLC:

• Your namemustinclude the phrase “limited liability company” or “limited company” or one of their abbreviations (LLC,L.L.C.,LC, orL.C.). “Limited” may be abbreviated as “Ltd.,” and “company” may be abbreviated as “Co.”
• Your namecannotinclude words that could confuse your LLC with agovernment agency(FBI, Treasury, State Department, etc.).
• Certainrestricted words(e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual to be part of your LLC.
• Your namemust be distinguishablefrom any existing business in the state. This includes South Dakota reserved names.

You can also read theSouth Dakota state statuteabout LLC naming guidelines for more information.

2.在南达科塔州是名字?You can use the business name availability search on theSouth Dakota Secretary of Statewebsite to see if your desired LLC name is available.

3. Is the URL available?We recommend checking to see if your business name is available as a网络域. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.

South Dakota S Corp Annual Report

While your business will be taxed as an S corp, it’ll still follow the guidelines in place for an LLC. South Dakota requires all businesses tofile an annual reportwith the South Dakota Secretary of State.

The purpose of this annual report is to provide the state with information about your business, including its contact information, and to inform the state of any recent changes. The report is due on the last day of the anniversary month in which you filed to form your business.

Visit ourSouth Dakota Annual Reportguide for a step-by-step overview of the filing process.

South Dakota S Corp Taxes

S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from theirreasonable salaryanddistributions, and South Dakota S corp owners can expect to pay the following taxes:

Federal Self-Employment Taxes

Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.

Federal Income Taxes

Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.

South Dakota Income Taxes

South Dakota is one of only nine states with no income tax imposed on businesses and individuals. This means you can save more of your earnings, allowing you to reinvest more money into your business to help it grow.

Some states have an income tax rate as high as 10%. South Dakota’s 0% income tax is one of the reasons why it has a reputation as a business-friendly state.

South Dakota Sales and Use Tax

South Dakota’s sales and use tax rate is 4.5%, which allows the state to provide public services for its residents. This tax applies to all retail sales, including selling, leasing, and renting tangible property or products.

许多苏th Dakota municipalities also have the right to impose their own sales and use tax. For more details, visit the state’sDepartment of Revenuewebsite.

Additional State Taxes

The South Dakota Department of Revenue provides details on the other state-specific taxes that may apply to your business. Examples of these additional taxes include:

• Alcohol Tax
• Cigarette and Tobacco Tax
• Tourism Tax
• Motor Vehicle Lease and Rentals Tax
• Contractors Excise Tax

Visit the state’sDepartment of Revenuewebsite for more information.

South Dakota Local Taxes

Whether you start your business in Sioux Falls, Rapid City, or a smaller South Dakota city, your business may have to file and pay local taxes. Check with your local government to ensure your business remains compliant.