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An S Corporation is not a type of business entity. It is a federal tax classification available to qualifying corporations and LLCs that elect to have their business income pass through to shareholders for tax purposes.
The S Corp designation is governed by Subchapter S of the Internal Revenue Code. When you elect S Corp status, the business itself generally does not pay federal income tax. Instead, income, losses, deductions, and credits flow through to shareholders, who report them on their personal returns. [12]
In South Dakota, an S Corporation has no state income tax obligation. The S Corp pays no state-level income or franchise tax (except for the limited bank franchise tax on financial institutions under SDCL 10-43). Shareholders also have no South Dakota personal income tax on pass-through income. [11]
For business owners earning $60,000 or more in net business income, the S Corp election can provide meaningful federal self-employment tax savings. Only the salary you pay yourself as a W-2 employee is subject to Social Security and Medicare taxes; distributions beyond reasonable compensation are not. This is the primary reason to elect S Corp status in a no-income-tax state like South Dakota.
| Action | Deadline | Notes |
|---|---|---|
| File IRS Form 2553 | Within 2 months and 15 days after the start of the tax year | For a January 1 tax year, the deadline is March 15. Late election relief may be available under IRS Rev. Proc. 2013-30. [3] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders. No South Dakota income tax return is required. |
| File Annual Report | Before the first day of the anniversary month | Filed with the SD Secretary of State. $55 online or $70 paper. Delinquent reports incur a $50 late fee. |
| File Sales/Use Tax Returns | Monthly or quarterly, depending on volume | Required only if your S Corp sells tangible personal property or taxable services in South Dakota. State rate is 4.2%. [7] |
| Pay federal estimated tax | April 15, June 15, September 15, January 15 | Required if you expect to owe more than $1,000 in federal income tax. No South Dakota estimated tax is required. |
| Set up payroll | Before paying yourself a salary | Register with the SD Department of Labor and Regulation, Reemployment Assistance Division, for unemployment insurance. [9] |
An S Corp is a tax classification, not a standalone entity. You must have an active South Dakota corporation or LLC on file with the Secretary of State before you can elect S Corp tax treatment with the IRS.
If you want to form an LLC first, check this guide.
If you want to incorporate as a C Corp first, check this guide.
Already have an existing LLC or corporation? Move to Step 1.
Form 2553 must be filed no later than 2 months and 15 days after the beginning of the tax year the election is to take effect.
Submit by mail or fax. No filing fee.
Mail to: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201. Fax: 855-214-7520. [8]
Because South Dakota has no state income tax, there is no state-level S Corp election. The federal Form 2553 election is the only S election required for a South Dakota entity.
As an S Corp shareholder-employee, you must pay yourself a reasonable salary through W-2 payroll. The IRS scrutinizes S Corps that pay unreasonably low salaries to avoid payroll taxes. Even though South Dakota has no income tax, the federal 15.3% self-employment tax on the wage portion still applies and is the primary reason to elect S Corp status.
If you do not already have an EIN, apply at no charge on the IRS website (irs.gov).
South Dakota corporations and LLCs must file an annual report with the Secretary of State before the first day of the anniversary month each year. The fee is $55 online or $70 paper. Late filings incur a $50 delinquent fee.
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). No South Dakota state income tax return is required.
If you expect to owe more than $1,000 in federal income tax after withholding, pay quarterly estimated tax using Form 1040-ES. No South Dakota estimated tax is required.
If your S Corp sells tangible personal property or taxable services in South Dakota, register with SDDOR and collect 4.2% state sales tax (plus any local municipal tax). File returns monthly or quarterly through the SDDOR portal.
If you fail to file Form 2553 with the IRS on time, your S Corp election will not take effect for the current tax year. Your business will be taxed federally as a C Corporation (or as a sole proprietorship or partnership if the underlying entity is an LLC), costing you the federal self-employment tax savings until the next tax year.
The IRS offers late election relief under Revenue Procedure 2013-30. To qualify, you must file within 3 years and 75 days of the intended effective date, demonstrate reasonable cause, and confirm that the entity has consistently filed as if the S election were in effect.
Because South Dakota has no state income tax, missing the federal deadline has no state consequences. There is no separate state late-election process.
At the federal level, the S Corp election can be revoked by filing a statement of revocation with the IRS, signed by shareholders holding more than 50% of the outstanding shares. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent.
Because South Dakota has no state income tax, revocation has no state consequences.
South Dakota imposes no state individual or corporate income tax. S Corps in South Dakota file no state income tax return and pay no state income tax at the entity level. Shareholders also pay no South Dakota personal income tax on their pass-through share.
South Dakota has no Pass-Through Entity (PTE) tax election because there is no state income tax to be capped or worked around. The federal SALT cap workaround is not available in South Dakota. [6]
South Dakota state sales tax is 4.2% on most tangible personal property and certain services (per SDCL 10-45-2; HB 1137 of 2023). Municipalities may add up to 2% additional local sales tax. Register through SDDOR if your S Corp makes taxable sales.
S Corps in construction services pay a 2% contractor’s excise tax on gross receipts under SDCL 10-46A. Bid factor 2.041%. Applies only to construction projects, not to general retail or service businesses. [10]
South Dakota imposes a bank franchise tax on financial institutions (banks, savings and loans, production credit associations) under SDCL 10-43. Regular operating S Corps and LLCs are NOT subject to this tax. [11]
| Item | Cost |
|---|---|
| Articles of Incorporation (corporation) | $150 online / $165 paper |
| Articles of Organization (LLC) | $150 online / $165 paper |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Annual Report | $55 online / $70 paper |
| Delinquent annual report fee | $50 late fee |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($150 online) | Articles of Organization ($150 online) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| South Dakota Tax Treatment | No state income tax | No state income tax |
| Annual Report Fee | $55 online / $70 paper | $55 online / $70 paper |
| Self-Employment Tax | Only on W-2 salary | 15.3% on all net earnings |
| Ownership Limits | Max 100 U.S.-person shareholders, one class of stock | Unlimited members, any type |
| Management | Directors and officers required | Flexible; member or manager managed |
| Reasonable Salary Required | Yes | No |
| PTE Election Needed | No (no state income tax) | No (no state income tax) |
| Annual Report Deadline | Before 1st day of anniversary month | Before 1st day of anniversary month |
| Best For | Owners earning $60K+ wanting federal SE-tax savings | Small businesses prioritizing simplicity |
Because South Dakota has no state income tax, the S Corp question in South Dakota is purely about federal self-employment tax savings. Use this guide:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Federal payroll and compliance costs typically erase the savings. |
| $40,000 to $60,000 | Borderline. Run the numbers with a CPA. |
| $60,000 to $100,000 | Usually saves $2,000 to $5,000 per year in federal self-employment taxes. |
| $100,000 to $200,000 | Strong candidate. Savings often $5,000 to $10,000+ per year. |
| Over $200,000 | Almost always advantageous unless you have specific reasons (foreign investors, IPO plans) to remain a C Corp or LLC. |
Keep in mind that South Dakota’s annual report fee, payroll setup costs, and ongoing CPA fees together add roughly $700 to $2,000 in annual costs. The complete absence of state income tax is a meaningful advantage of forming in South Dakota.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income. Distribute K-1s to shareholders. |
| Annual Report (SDSOS) | Filed on the first day of the anniversary month. $55 online / $70 paper. |
| Form 941 (Federal Payroll Tax) | Filed quarterly. |
| Form 940 (Federal Unemployment Tax) | Filed annually by January 31. |
| SD Reemployment Assistance quarterly report | Quarterly UI contribution report filed with the SD DLR Reemployment Assistance Division. |
| W-2s and 1099s | Distributed by January 31. Filed with IRS and Social Security Administration. |
| Federal Estimated Tax Payments | Quarterly federal estimated tax if expected liability exceeds $1,000. |
| Sales/Use Tax Returns (if applicable) | Monthly or quarterly depending on volume. State rate 4.2%. |
| Contractor’s Excise Tax (if applicable) | Monthly or quarterly for construction services at 2%. [10] |
| Registered Agent Maintenance | Keep agent and physical South Dakota address current with the Secretary of State. |
[1] South Dakota Department of Revenue. Individuals: Taxes (No State Income Tax). Accessed May 18, 2026.
[2] South Dakota Secretary of State. Filing Fees. Accessed May 18, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 18, 2026.
[4] South Dakota Legislature. SDCL 47-1A-501 (Registered Office and Agent). Accessed May 18, 2026.
[5] South Dakota Secretary of State. Corporations: Annual Reports and Filings. Accessed May 18, 2026.
[6] SDDOR. Businesses: Taxes (No Corporate Income Tax). Accessed May 18, 2026.
[7] SDDOR. Sales and Use Tax (4.2% State Rate). Accessed May 18, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 18, 2026.
[9] South Dakota Department of Labor and Regulation. Reemployment Assistance Tax Business Registration. Accessed May 18, 2026.
[10] SDDOR. Contractor’s Excise Tax (2%). Accessed May 18, 2026.
[11] SDDOR. Bank Franchise Tax (Financial Institutions Only). Accessed May 18, 2026.
[12] IRS. S Corporations. Accessed May 18, 2026.
[13] Social Security Administration. Contribution and Benefit Base (Wage Base for SE Tax). Accessed May 18, 2026.
