Excellent
7,486 reviews
Before going into the details, here is your quick checklist for starting an S Corp in Montana.
Business Entity: You must have an active Montana LLC or C corporation registered with the Montana Secretary of State before electing S corp status.
Shareholder Limit: No more than 100 shareholders or members are allowed at any time.
Eligible Shareholders: Shareholders must be U.S. citizens or resident aliens. Partnerships, other corporations, and non-resident aliens are not eligible.
One Class of Stock: Your business can only issue one class of stock. Preferred stock arrangements are not permitted under S Corp status.
IRS Form 2553: File the S Corp election form with the IRS within the required timeframe after forming your entity. [1]
Montana Recognizes the Federal Election: Montana follows the federal S corp election and does not require a separate state-level S corp filing with the Montana Secretary of State.
Montana Pass-Through Entity Tax Return (Form PTE): Montana S corporations file Form PTE with the Montana Department of Revenue each year by March 15 for calendar-year filers. This is a state-level filing requirement separate from your federal return.
No Franchise Tax: Montana does not impose a franchise tax on S corporations.
Annual Report: File your annual report with the Montana Secretary of State by April 15 each year to keep your entity in good standing. The Secretary of State has waived the fee for 2026 and 2027, though a professional filing service might charge a little filing cost.
An S corporation is a federal tax classification under Subchapter S of the Internal Revenue Code. It is not a standalone business structure.
An eligible Montana LLC or C corporation files IRS Form 2553 to request S corp status. Once approved, the business does not pay federal corporate income tax on its profits. Instead, income and losses pass through directly to shareholders' personal tax returns, where they are taxed at the individual level.
To start an S corporation in Montana, you first form a business entity through the Montana Secretary of State. After your entity is active, you file Form 2553 with the IRS within the required deadline. Montana follows the federal election automatically and does not require a separate state election.
Montana's tax environment has some distinct features for S corp owners. The state has no sales tax and no franchise tax, which removes two common compliance obligations that businesses in other states must manage. Montana does have a personal income tax with a highest marginal rate of 5.65% (the rate is on a legislative path toward further reductions). S corp shareholders in Montana pay this rate on their share of pass-through income. At the corporate level, S corporations are not subject to Montana's 6.75% corporate income tax on pass-through income, but they do pay a minimum $10 filing fee when submitting their Montana state return.
Montana also offers an optional Pass-Through Entity Tax (PTET) election. S corporations that make this election pay Montana income tax at the entity level rather than passing the obligation to individual shareholders. This can provide federal tax planning benefits for some business owners.
Filing Form 2553 on time is one of the most important steps in the process. Miss the window and your election will not take effect until the following tax year.
| Scenario | Deadline | Effective Tax Year |
|---|---|---|
| Existing business, calendar year | March 16, 2026 | 2026 |
| New business formed January 15, 2026 | April 1, 2026 | 2026 |
| New business formed June 1, 2026 | August 15, 2026 | 2026 |
| Filed during prior year (2025) | December 31, 2025 | 2026 |
For existing calendar-year businesses, IRS rules require you to file Form 2553 by the 15th day of the third month of the tax year. In 2026, March 15 falls on a Sunday, so the deadline shifts to March 16, 2026.
New businesses have 2 months and 15 days from their formation date to file. Miss that window, and you will need to request a late election with a reasonable cause statement, or wait until the following tax year for the election to take effect.
If you wanted your S corp election to take effect at the start of 2026, you could have filed Form 2553 at any point during calendar year 2025. For all 2026 filings, use the deadlines above.
LLC members who do not elect S corp status pay self-employment tax (15.3%) on all net profits from the business. With an S corp election, you split your income between a W-2 salary and distributions. Only your salary is subject to payroll taxes. Distributions are not, which can produce meaningful savings at higher income levels. [2]
As an S Corp owner, you pay yourself a reasonable salary for the work you do in the business. Any remaining profits can then be taken as distributions. Distributions are not subject to self-employment taxes, which allows you to keep more of what your business earns while staying fully compliant with IRS requirements.
The Tax Cuts and Jobs Act allows qualifying S corp owners to deduct up to 20% of their qualified business income (QBI) from their personal tax returns under Section 199A. Distributions from an S corp may qualify for this deduction, reducing your taxable income further. W-2 salary payments do not qualify, so structuring your compensation correctly matters. [3]
Montana has no state sales tax and no franchise tax. For S corp owners, this means no franchise tax filing, no sales tax collection, and no sales tax returns. The only state-level taxes that apply are income taxes at the individual level on pass-through distributions. This combination makes Montana one of the more straightforward states for S corp owners to manage on an ongoing basis.
Electing S corp status does not change your LLC's legal structure, operating agreement, or management setup. Your members run the business exactly as before. You keep the same liability protection and operational control. The only change is how the IRS and Montana treat your business income for tax purposes.
A C corporation pays Montana's 6.75% corporate income tax on its profits at the entity level. When those profits are distributed to shareholders as dividends, shareholders pay income tax a second time on their personal returns. An S corp election eliminates this second tax layer. Profits pass through directly to shareholders and are only taxed once at the individual level.
S corp shareholders can deduct business losses on their personal tax returns, up to the amount of their basis in the company. C corporation shareholders have no equivalent benefit; losses stay at the corporate level. This pass-through of losses is particularly valuable during startup years or periods of lower revenue.
C corporations that retain earnings beyond reasonable business needs may be subject to the IRS accumulated earnings tax. S corporations avoid this penalty because profits pass through to shareholders each year rather than accumulating at the entity level. This gives Montana S corp owners more flexibility in how they manage earnings without triggering additional federal tax exposure.
C corporations file Form 1120 and Montana Form CIT, managing corporate-level taxes separately from shareholders' personal returns. S corporations file IRS Form 1120-S and Montana Form PTE, and each shareholder receives a Schedule K-1 reporting their share of income or loss. Many business owners find the S corp pass-through structure more manageable at tax time compared to maintaining separate corporate and personal tax layers.
Selling a C corporation can trigger taxation at two levels: the corporation pays tax on the gain from an asset sale, and shareholders pay tax again on distributions. An S corp election can allow a sale to be structured in a way that avoids this double layer of tax on the gain, potentially increasing after-tax proceeds when Montana business owners plan an exit or ownership transfer.
An S corp is a tax classification, not a standalone entity. You must have an active Montana LLC or C corporation registered with the state before you can file your IRS election. Here is how the full process works.
If you do not already have a registered Montana business entity, your first step is to form one. Choose the structure that fits your business goals. An LLC is simpler to maintain and works well for most small business owners. A C corporation is a better fit if you need to attract investors or issue multiple classes of stock.
Forming an LLC before your S Corp election is the most common path. Montana LLC filings go through the Montana Secretary of State. Here are the key steps:
For a full walkthrough of each step, visit our How to Start an LLC in Montana guide.
If you need a corporate structure before your S Corp election, here are the steps to form a C Corp in Montana:
For a complete walkthrough, visit our How to Start a C Corporation in Montana guide.
Already have an active Montana LLC or C corporation? Skip directly to Step 2.
Once your Montana LLC or C corporation is active, you file IRS Form 2553, the Election by a Small Business Corporation, to officially request S corp tax treatment from the IRS. This single form changes how the federal government taxes your business income from that point forward. Montana follows the federal S Corp election and does not require a separate state-level election with the Montana Secretary of State.
Form 2553 collects the following information:
All shareholders must sign the consent portion of the form before it is submitted. An unsigned form will be rejected by the IRS.
You can submit Form 2553 by mail or fax. There is no filing fee.
Faxing is typically faster than mailing. Keep your fax confirmation receipt. The IRS will send a CP261 acceptance notice to confirm your S corporation election. If your election is not accepted, you will receive a letter explaining the issue. [5]
Montana recognizes the federal S corp election and taxes S corporations as pass-through entities at the state level. Once your election is in place, your S corporation must file a Montana Pass-Through Entity Tax Return (Form PTE) with the Montana Department of Revenue each year.
Minimum fee: Montana S corporations pay a minimum fee of $10 when filing Form PTE, even if no additional tax is owed at the entity level
Extension: Montana grants an automatic six-month extension to file Form PTE. The extension moves the filing deadline to September 15 for calendar-year filers. It does not extend the time to pay any tax owed
Montana allows S corporations to pay tax at the entity level. For the 2026 tax year, the PTET rate is aligned with the top individual rate of the highest marginal rate, 5.65%. This election is made annually on Form PTE.
If your Montana S corporation has nonresident shareholders, the corporation is required to withhold Montana income tax on the nonresident's share of Montana-sourced income at a rate of 5.65% for 2026, unless those shareholders are included in a composite return filed on their behalf. This obligation arises each year and is handled through Form PTE. [6]
Once your S corp election takes effect, IRS rules require you to pay yourself a W-2 salary if you work in the business. This is not optional. Owner-employees of S corporations cannot simply take all their compensation as distributions.
The IRS expects your salary to reflect what someone performing similar work, in the same industry, and in the same region would typically earn. There is no fixed formula, but the IRS flags S corps where owner salaries appear unusually low relative to distributions.
Setting your salary too low risks the IRS reclassifying distributions as wages, which would make them subject to payroll taxes. Setting it too high means you are paying more in payroll taxes than necessary.
Payroll adds ongoing administrative requirements to your business.
Every S corporation files its own federal tax return each year using IRS Form 1120-S. This is a separate return from your personal Form 1040, and it is due by March 16, 2026, for calendar-year S corporations (March 15 falls on a Sunday in 2026). Each shareholder receives a Schedule K-1 showing their individual share of income or loss, which they use to complete their personal federal tax returns.
Montana S corporations file Form PTE with the Montana Department of Revenue by March 15 each year for calendar-year filers. This return reports Montana-sourced income, calculates any applicable state-level tax or PTET election, and processes nonresident withholding if required. An automatic six-month extension is available, moving the filing deadline to September 15, but any tax owed is still due by the original deadline.
Once your S corp is active, there are ongoing requirements to stay in good standing. Here is what applies specifically to Montana S corporations.
S corporations file Form 1120-S with the IRS each year by March 15 for calendar-year filers (March 16 in 2026 because March 15 falls on a Sunday). This returns Schedule K-1 to each shareholder. A six-month extension is available by filing IRS Form 7004 by the original deadline, moving the filing deadline to September 15, 2026, but this does not extend your time to pay any tax owed. [8]
Your Montana S corp must file Form PTE with the Montana Department of Revenue by March 15 each year. The minimum filing fee is $10. If your S corp has nonresident shareholders who are not included in a composite return, withholding at 4% of their Montana-sourced income is required alongside this filing.
All Montana businesses must file an annual report with the Montana Secretary of State by April 15 each year to remain in good standing. The standard filing fee is $20. Montana Secretary of State Christi Jacobsen has waived the annual report fee for 2026 and announced the same waiver for 2027. If you file after the April 15 deadline, a $15 late penalty applies. Entities that fail to file by December 1 face administrative dissolution.
The IRS requires S corp owner-employees to receive a reasonable salary for work performed in the business. This salary is subject to payroll taxes. The IRS scrutinizes compensation levels in S Corp audits. Underpaying yourself to maximize distributions is one of the most common compliance issues the IRS reviews.
S corp owners who work in the business must be on the payroll. Federal employment taxes are deposited on a quarterly schedule using Form 941. If your Montana S corp has employees, you must also register with the Montana Department of Revenue to withhold Montana income tax and with the Montana Department of Labor and Industry for unemployment insurance contributions.
Montana S corporations that are formed as corporations must maintain corporate records, including meeting minutes, bylaws, and a current list of shareholders and directors. Keeping these records current protects your liability shield and supports your standing with the IRS.
Montana does not require a general state business license, but some industries require licenses or permits through specific state agencies, including the Montana Department of Labor and Industry and other licensing boards. Check city and county requirements as well, since local jurisdictions may have their own permit requirements.
Missing the IRS filing deadline does not automatically end your options. The IRS provides a path for late elections under Revenue Procedure 2013-30, as long as certain conditions are met.
To qualify for late election relief, your business must meet the following:
If you miss the March 16, 2026, deadline for the current tax year, your S corp election may still apply to 2026 if you file with a valid, reasonable cause explanation.
For LLCs filing a late election, you may also need to file IRS Form 8832 (Entity Classification Election) alongside Form 2553. This step is required when an LLC needs to first elect corporate tax treatment before the S corp designation can apply.
Late elections involve additional IRS review. Many business owners work with a formation service or tax professional to make sure the paperwork is complete and the reasonable cause statement is properly written before submission.
Circumstances change. There may come a point when S corp status no longer fits your business, and revoking the election is the right move.
To revoke the election, shareholders holding more than 50% of the company's stock must file a written revocation statement with the IRS service center where Form 2553 was originally submitted. There is no IRS form for this. It is a letter sent to the same Ogden, UT address used for Form 2553.
File the revocation on or before March 16 of the current tax year (for calendar-year businesses), and it takes effect for that year. File it after that date, and the revocation takes effect the following year.
Once an S corp election is revoked, the entity generally cannot re-elect S corp status for five years without IRS consent.
Montana Secretary of State, Business Services: Entity formation, name search, Articles of Organization, Articles of Incorporation, and annual report filings
Montana Department of Revenue, S Corporations: State-level guidance on Form PTE, pass-through entity tax, and nonresident shareholder withholding
Montana Department of Labor and Industry: Register for Montana unemployment insurance and employer tax obligations
Montana Small Business Development Center (SBDC): Free advising, training, and resources for Montana small business owners
U.S. Small Business Administration, Montana District Office: Federal loans, grants, and business development programs for Montana businesses
IRS, Free EIN Application: Apply for your federal Employer Identification Number at no charge
USPTO, Federal Trademark Registration: Protect your business name and brand at the federal level
