Michigan LLC vs S Corp: Taxes, Annual Costs and When to Elect
Michigan LLC vs S Corp: Taxes, Annual Costs and When to Elect
An LLC and an S corp are not two rival entity types. An LLC is a legal entity you form with the state. An S corp is a federal tax election that a corporation or an LLC can make with the IRS, and Michigan follows that election. This guide explains what Michigan charges each setup, how the state taxes the profit, where the real savings are, and when a Michigan S corp election is worth the paperwork.
Informational content, not legal or tax advice. This guide explains Michigan rules in plain terms. It is not legal, tax or accounting advice. If your situation involves multiple owners, payroll, an existing corporation or a city income tax, talk to a Michigan business attorney and a CPA before you decide. Confirm every figure with the agency named in the article before you file.
An LLC and an S Corp Answer Different Questions
Most confusion comes from mixing up two separate decisions:
- Entity type. Are you forming a limited liability company or a corporation? You file this with the Michigan Department of Licensing and Regulatory Affairs (LARA), Corporations Division, through the MiBusiness Registry Portal. An LLC files Articles of Organization (Form CSCL/CD-700). A corporation files Articles of Incorporation for Profit Corporation (Form CSCL/CD-500).
- Tax treatment. How the federal government and Michigan tax the profit. A multi-owner LLC is taxed as a partnership by default, and a single-owner LLC is disregarded for income tax purposes. Either can elect S corp status, and a corporation can elect S status as well.
That distinction matters because most owners do not have to choose between an LLC and an S corp at the start. Many form an LLC, keep it simple, and later decide whether to make the S election once profit is steady enough to justify payroll.
What Each Setup Costs to File in Michigan
The state filing costs are small and the same for an LLC whether or not it elects S status. The differences come from the entity type and the due dates.
| Item | LLC (any tax treatment) | Corporation (C or S) |
|---|---|---|
| Formation filing fee | $50 (Articles of Organization) | $60 (Articles of Incorporation) |
| Yearly filing | $25 Annual Statement (Form CSCL/CD-2700) | $25 Annual Report (Form CSCL/CD-2500) |
| Due date | February 15 each year, beginning the year after formation | May 15 each year, beginning the year after incorporation |
| Late fees | Professional LLCs pay $75 and a $50 late fee if filed after February 15 | $35 from May 16 to May 31, rising on a published schedule to a $75 maximum on or after September 1 |
| Timing exception | An LLC formed or qualified after September 30 does not owe the statement on the February 15 immediately following | Check the Annual Report instructions for your first year |
Two points to keep in mind. First, the S election itself has no LARA fee. It is a tax election, not a state filing, so the LARA cost stays at $25 a year. Second, every LLC and corporation must name a resident agent in its formation documents. Michigan uses the term resident agent. The agent must be a Michigan resident or an entity authorized to do business in Michigan, and the registered office must be a physical address. A P.O. box alone is not enough. Changes are filed on Form CSCL/CD-520.
Before you choose a name, search the MiBusiness Registry business search. A domestic LLC name must include Limited Liability Company or the abbreviation L.L.C. or L.C.
How Michigan Taxes Each Structure
Michigan has no franchise tax and no gross receipts tax for ordinary businesses. The tax you pay depends almost entirely on whether the business is taxed as a pass-through or as a corporation.
Standard LLC (partnership or disregarded)
The profit passes through to the owners. Each owner reports their share on the Michigan individual income tax return at the flat 4.25% rate for the 2026 tax year. The LLC itself pays no Michigan income tax, and the only recurring LARA charge is the $25 Annual Statement.
LLC or corporation with S status
Michigan follows the federal S election. An S corp owes no Michigan Corporate Income Tax. Its owners pay the 4.25% individual rate on their share of the income, the same as a standard LLC. The difference is federal: an S corp can pay owners a salary and distribute the rest, which changes how payroll tax applies. That is covered below.
C corporation
A corporation taxed as a C corporation pays the 6% Michigan Corporate Income Tax on its income. An LLC that elects federal C corporation treatment is subject to the same 6% tax. A small business alternative credit offers an alternate rate of 1.8% of adjusted business income for qualifying businesses. Check with the Michigan Department of Treasury on eligibility before you count on it.
A simplified comparison on $100,000 of profit shows the scale of the difference. Under a pass-through structure, the owner's share is taxed at 4.25%, or $4,250, before other adjustments. Under a C corporation, the 6% tax alone would be $6,000 before apportionment, credits and the small business alternative, and owners still report distributions on their own returns. These figures are arithmetic illustrations, not a calculation of your tax. Have a CPA run your numbers.
Where the Real Savings Are: Payroll Tax, Not a State Fee
Because LARA charges the same $25 either way and Michigan has no franchise tax on ordinary businesses, the Michigan-specific saving from an S election is not a state fee. The saving, when there is one, comes from federal payroll tax.
A single-owner LLC without S status pays self-employment tax on its net profit. An S corp owner who works in the business must take a reasonable salary, and payroll tax applies to that salary. Profit paid out above the salary as distributions is not subject to the same payroll tax. The IRS requires the salary to be reasonable for the work performed, and that requirement is where many S corp plans fail on audit.
The trade-off is real. An S corp adds costs and work:
- Payroll processing, including federal and Michigan income tax withholding filed with Treasury and unemployment tax filings with the Michigan Unemployment Insurance Agency.
- A separate federal S corp return and a Michigan return that follows it.
- A CPA or payroll service to set and document the owner salary each year.
- Corporate formalities that a single-owner LLC may not have needed.
If profit is small or uneven, these costs can wipe out the payroll tax saving. If profit is steady and the owner works in the business, the saving can be worth the added work. Model both options with real numbers before you file the election.
The Flow-Through Entity (FTE) Tax
Michigan also offers an optional Flow-Through Entity tax. An LLC taxed as a partnership or an S corp may elect to pay the tax at the entity level instead of having each owner pay it individually. The FTE tax is levied at the same 4.25% rate as the individual income tax.
The timing is strict:
- The election must be made by the last day of the 9th month after the tax year ends. For a calendar-year filer, that is September 30. This applies to tax years 2024 onward.
- Once made, the election is irrevocable and binding for three years. Treat it as a multi-year decision, not a one-year tweak.
- The benefit is tied to the federal SALT cap, which limits how much state tax an individual can deduct on a federal return. Whether an FTE election helps depends on your federal situation, and federal limits change from year to year.
Because the FTE tax interacts with federal deductions, it is a CPA question, not a guess. Ask your CPA to compare the FTE election against standard pass-through treatment using your actual owner income and federal deduction picture. Confirm the election procedure with the Michigan Department of Treasury.
City Income Tax Applies Separately
Michigan has 83 counties, roughly 275 to 280 cities, roughly 255 to 258 villages and 1,240 townships. Only 24 Michigan cities levy a city income tax, and that tax applies to business income too. Choosing an LLC, an S corp or a C corporation does not remove a city income tax that applies to your location. Check with your city treasurer or clerk before you model the state numbers, because the city tax can change the outcome.
When an S Election Makes Sense
An S election is usually worth considering when most of these are true:
- The business has consistent, meaningful profit, not a small or swinging number.
- The owner works in the business and can take a documented salary.
- You are prepared to run payroll and file the extra returns, or you can pay someone to do it.
- You expect to keep the business for several years, so the setup costs are spread out.
An S election is usually a poor fit when the business is new and unprofitable, when owners want very different allocations of profit, when the owner needs flexibility to take all profit without a salary, or when the work will not justify payroll and extra filings.
Other Michigan Filings That Do Not Change
Picking an S election does not change licensing. Michigan has no general statewide business license. LARA's Corporations Division files and maintains entities, but it does not license businesses. Licensing is by trade or activity, through bodies such as the LARA Bureau of Professional Licensing, the Bureau of Construction Codes, MDARD and the Michigan Liquor Control Commission. Local zoning, certificates of occupancy and health approvals can also apply. Use the State License Search to check what your business needs.
If you operate under a name other than your legal name, an LLC files a Certificate of Assumed Name with LARA for $25. A corporation or limited partnership pays $10. Sole proprietors and general partnerships file with the county clerk instead. Retailers must register with Treasury for a sales tax license, which is free.
Your Next Steps
- Check the name on the MiBusiness Registry business search and file Articles of Organization or Incorporation.
- Name a resident agent with a real Michigan street address.
- Ask a CPA to model your profit as a pass-through LLC, an S corp and a C corporation, including any city income tax.
- If you plan to use the FTE tax, make the election by September 30 for a calendar-year filer.
- Calendar the annual filing: February 15 for an LLC, May 15 for a corporation.
- Confirm licensing for your trade in the State License Search and check local requirements.
Where to Confirm the Details
- LARA Corporations Division: michigan.gov/lara/bureau-list/cscl/corps. Filing fees, forms and the annual statement schedule.
- MiBusiness Registry Portal: mibusinessregistry.lara.state.mi.us. Online filing and the business search.
- Michigan Department of Treasury: michigan.gov/taxes. Individual and corporate income tax rates, the FTE election and sales tax registration.
- Michigan Small Business Development Center: michigansbdc.org. Free business advising for planning the structure before you file.
Confirm the current FTE election procedure and the city income tax rules with the agencies above before you act. Rates and procedures can change, and this guide reflects the figures verified on the date it was researched.
Reminder: This is informational content, not legal or tax advice. Entity choice and S election decisions depend on your facts, so consult a qualified Michigan attorney and CPA before you file.