When Should a Montana LLC Elect S-Corp Status?
A lot of business owners around Bozeman first hear about S-corp status from a friend on a job site or someone at the gym. The pitch is always the same. Elect S-corp, pay less tax.
It's not that simple. And the part nobody mentions is what it does to your books.
When should a Montana LLC elect S-corp status?
There's no profit number that makes the answer yes. The real test is whether your business earns enough, steadily enough, to pay you a real wage every month of the year and still have profit left after the extra payroll and filing work. If your income swings hard by season, or you'd have to guess at your profit right now, it's early.
That's a different answer than most articles give you. We can't tell you whether to make the election, and neither can a blog post. What we can do is show you what changes on your end, so you walk into that conversation knowing what you're signing up for.
An S-corp is not a different company
First thing to clear up. Electing S-corp status doesn't turn your LLC into a corporation. Your LLC stays an LLC. Same registration with the Secretary of State, same operating agreement, same liability protection.
What changes is how the IRS treats your income. You make the election by filing a form with the IRS, and Montana follows that federal election. You don't file a separate S-corp election with the state.
So it's a tax classification decision, not a legal restructure. People mix those up all the time.
What changes in your books on day one
Here's the part that gets skipped. The day the election takes effect, you become an employee of your own business.
That means:
You run payroll for yourself, every pay period, not once at year end.
You withhold payroll taxes and send them in on a schedule.
You file payroll tax returns.
You issue yourself a W-2.
The business files its own tax return, separate from your personal one.
Montana treats the business as a pass-through entity, which adds a state return on top of the federal one.
None of that is hard. All of it is work, and it's work that lands on a calendar whether you feel like doing it or not. If your books are already behind, the election makes being behind more expensive, because late payroll filings carry penalties that owner draws never did.
There's also the salary question. The IRS expects an owner who works in the business to pay themselves a reasonable wage for the work they actually do. There's no formula. It's based on what someone doing your job, in your industry, in your area would earn. That's a real conversation with the person who prepares your return, not a number you pick because you liked the sound of it.
The Montana part most articles skip
Montana has no general state sales tax. That's one less thing to file either way, and it's one of the better things about running a business here. We went into more detail on what Montana's lack of a sales tax does to your bookkeeping if that's useful. But it doesn't make the S-corp question easier, because that question is about payroll and profit, not sales tax.
What does matter here is the season.
A lot of Gallatin Valley businesses make most of their money in a short window. Construction, excavation, landscaping, roofing, anything that follows the build season. You're flat out from spring to fall. Then it goes quiet.
Payroll doesn't go quiet. Once you're an owner on payroll, that paycheck and those tax deposits keep coming in February the same as they do in July. An article written for a consultant in Phoenix doesn't account for that at all.
That doesn't make the election wrong for a seasonal business. Plenty of seasonal businesses run it just fine. It means your winter months belong in the conversation too, and most owners only bring the summer numbers.
Payroll records also stick around longer than you'd think once you have them. We wrote separately about how long a Montana contractor should keep business records.
Side by side
LLC, taxed the default way | LLC with an S-corp election | |
Legal structure | LLC | Still an LLC |
How you pay yourself | Owner draws | A W-2 paycheck, plus distributions |
Payroll for the owner | Not required | Required if you work in the business |
Business tax return | Flows through to the owners | Flows through, after the business files its own return |
Montana filing | Personal return | Adds a state pass-through return |
Bookkeeping workload | Lighter | Heavier, and on a fixed schedule |
Your year-end paperwork | K-1 or Schedule C | W-2, plus a K-1 |
Signs the question is worth asking
Your profit has held steady for more than one good season.
You could pay yourself a regular wage all 12 months without sweating it.
Your books are current, so you know what your profit actually is.
You already run payroll for employees, so adding yourself isn't a brand new system.
Signs it's probably early
You'd have to guess if someone asked what you made last month.
Your income swings hard and you've had lean months this year.
Personal and business spending still run through the same account.
Adding payroll and more filings would be the thing that finally breaks your bookkeeping.
Where to go from here
The election itself is a tax decision, and it belongs with the person who prepares your return. If you're not clear on who handles what, we covered the difference between a bookkeeper and an accountant in an earlier post.
What we can tell you is whether your books are in shape to answer the question honestly. The whole thing rests on knowing your real profit, month by month, and most owners who ask us about S-corp status find out their numbers aren't clean enough yet to tell.
If that sounds like you, that's the part we handle. Blackfin does bookkeeping for Bozeman and Four Corners businesses, and we're happy to look at where your books stand before you sit down with anyone about the election. Give us a call at 406-404-8955. Same-day response.