Although a Michigan S-corporation tax return is filed by the corporation, taxes are paid by individual shareholders on their respective share in profits.

What Is a Michigan S-Corporation?

A Michigan S-corporation is a standard corporation that has elected for the special S-corp tax status with the IRS. The election is done by filing Form 2553 with the Internal Revenue Service. Some states like Arkansas, Ohio, New Jersey, Wisconsin, and New York require additional filing at the state level.

Michigan S-corporations offer a formal corporate structure with limited liability, along with the flexibility of profit pass-through for the purpose of taxation.

Just like a C-corporation, an S-corporation is a legal entity that is distinct from its shareholders. Shareholders' liability with a Michigan S-corporation is limited. They can't be held personally accountable for business debts and obligations.

Shareholders of a Michigan S-Corporation

Normally, the financial risk of the shareholders is limited only to the amount they have invested in the corporation. In the event of corporate bankruptcy, the shareholders are not liable to pay the corporation's debts from their personal assets.

In a lawsuit, if a corporation is held liable to pay someone, the corporation's property would be used to satisfy the judgment. Even if the corporation's property is found insufficient to satisfy the judgment, the creditor of an S-corp can't take the personal assets of shareholders.

However, there are certain exceptions to this rule of limited liability. For example, if a corporation has committed a fraud or has acted negligently and harmed someone, the courts may lift the corporate veil to hold the actual culprit accountable.

How to Form a Corporation in Michigan

  1. Choose a business name for your corporation.
  2. File Articles of Incorporation with the Secretary of State.
  3. Appoint a state registered agent to receive legal communication on behalf of the corporation.
  4. Maintain separate books of accounts and records.
  5. Prepare corporate bylaws.
  6. Appoint the directors.
  7. Hold a meeting of the Board of Directors.
  8. Issue and allot stock to shareholders.
  9. Comply with the state-level reporting requirements of Michigan.
  10. Comply with federal tax and corporate regulatory requirements.

Important Points to Consider When Forming a Michigan S-Corporation

  • You must file all the formation documents with the state and pay the state filing fees.
  • There may be some restrictions on the types of business allowed to be conducted by Michigan S-corporations.
  • You must keep minutes of the meetings of both shareholders and the board of directors.
  • The number of shareholders cannot be more than 100.
  • You cannot have other corporations, LLCs, partnership firms, certain specified trusts, and non-resident aliens as shareholders of your corporation.

Registration for Michigan Taxes

  • You must register a new business in Michigan to pay taxes. Use Form 518 for this purpose.
  • You should mail Form 518 to the Michigan Department of Treasury at least six weeks prior to the commencement of business.
  • Mention whether your business involves selling tangible property, making you liable to pay sales tax, or whether you are into leasing of property, which requires you to pay a use tax.
  • If you sell tobacco or motor fuels, you should also register to pay taxes on these items.
  • Be aware that Michigan levies corporate income tax, but there are no franchise or privilege taxes in the state as of 2012.
  • After the tax year ends, you must file the returns by the 15th day of the fourth month. If your corporation follows the calendar year for taxation, you must file the returns by 15th of April.

Employer Obligations

  • If your company has employees, you must register for employer-related taxes, like unemployment insurance.
  • Find out whether you need to withhold income tax (federal and state) from your employees' salary.
  • After you register for the state taxes, you will get personalized tax returns for reporting withheld income.
  • Every year, report the withheld income to the state by filing Form 165. The report should also include the copies of W-2 forms distributed to the employees and the IRS.

Federal Taxes

According to Michigan state laws, you must file federal tax returns before filing state returns.

The IRS does not consider an LLC as a separate business category for taxation. For the purpose of taxation, you need to classify your business either as a corporation or a partnership firm.

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