How to Incorporate in Montana vs. How to Start a Montana LLC

LLCs and corporations both provide liability protection for their owners. This means that each business entity acts as a shield between the human element and the physical business, so that if a lawsuit was to be filed, or a bankruptcy was to occur, the owners of the business are not likely to see their personal assets (cars, homes, savings, investments, etc..) to be used to pay debts. But beyond that, most people don’t entirely understand the differences between LLCs and corporations. Active Filings is about to drop some knowledge. Let’s take a quick look at some of the structural differences between corporations and LLCs. People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.

• Ease of maintenance
  Corporations have to keep minutes, hold meetings, and record votes and resolutions. LLCs require none of these things, saving you time and the overall hassle. There are fewer forms required for registering, and there are generally fewer start-up costs. The knock against LLCs is that they aren’t perpetual. Unless your LLC’s operating agreement specifies exactly what happens in the event a member dies, resigns or declares bankruptcy, most states require that LLCs dissolve when these events occur. Corporations, however, can exist as their own entity, regardless of what happens to the individuals involved in the business.
• Desired tax structure
  Corporations get hit with double taxation, which means they pay a corporate tax in most states and they pay taxes on dividend income. Inherently, this sounds like a bad deal, but C-corps do have several possible advantages, as they are able to reinvest profits into the company, which can alleviate the tax bill. LLC’s get pass-through taxation, so the individual member or members declares their LLC income on their own personal tax forms.
• Investors
  Most LLCs start small, with a few thousand bucks borrowed from friends, family, and maybe the bank. Investors aren’t all that attracted to LLCs. They much prefer the corporate structure of owning shares in a company and getting a return on investment based on the company’s performance. If you plan on building your company into something big, you’ll want to incorporate for the sake of being able to attract outside investment.

Another thing to consider is prestige. According to the IRS, at over 2.5 million and counting, LLCs are the fastest growing entity in the US. They are almost universally considered an excellent vehicle for starting a small business, and yet one of the drawbacks is that a business with an LLC attached to the title just doesn’t hold the same prestige as a company with an Inc. Inc. just sounds official, but as noted above, LLCs are quickly gaining in popularity, and their ease of use and ease of formation may soon overtake the corporation as most popular entity.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Montana. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

Above, we listed the general advantages and disadvantages of corporations and LLCs. But that doesn’t actually answer the question as to whether a Montana LLC is better than a Montana Corporation. That’s because each state has its own statutes that govern entities formed in and operating within that state’s jurisdiction. That makes a Montana LLC and a Montana corporation different than a corporation or LLC formed in any other state. Take a look below to see what makes Montana LLCs and corporations unique:

• Montana Sales Tax
  A Montana LLC is a legally recognized resident entity of Montana. LLCs are much more flexible in their ownership, less formal to operate than a corporation, and if structured properly, there is no need for tax return filings. A Montana LLC can be established to be used as a holding company. For those looking to minimize the overall cost of vehicle ownership, a Montana LLC is very unique, with no sales or use tax on vehicle purchases, no personal property tax or ad valorem tax, and reasonable registration fees.
• Property Taxes
  Montana is ranked number twenty nine out of the fifty states, in order of the average amount of property taxes collected, which means the state is a bit rough on property owners with regards to taxes. However, the state is trying to combat this image with a few business-friendly tax breaks, one of them being with regards to businesses that invest a minimum of $125,000 worth of qualifying improvements or modernized processes will be eligible to receive partial property tax abatement for up to 9 years based on an increase in taxable value caused by improvements. Basically Montana wants to incentive companies modernize and not penalize the increase in value on the property.
• Montana Corporate Income Tax
  Montana’s corporate income tax is a flat rate of 6.75%, with a minimum tax of $50 regardless of earnings. It’s not the highest and it’s not the lowest tax rate you’ll find. The leading US tax policy think tank The Tax Foundation, ranks Montana at #12 in the US for corporate taxation. Montana, unlike some other states, does not have a “franchise tax” or “privilege tax” just for doing business in the state. That means that unless you have a true C Corporation, your business as an entity will not be taxed. Montana corporations are subject to the dreaded “double taxation” whereby business income is taxed at both the corporate level and personal level, as in the case of stock dividends.
• LLC Privacy
  While not as stringent on their privacy laws as Wyoming or Nevada, Montana does offer LLC owners some pretty nice privacy benefits. For starters, when you file your LLC, the Secretary of State only releases a few key pieces of information: your registered agent and office address, your primary business address, and the name of your LLC. All personal information such as names or addresses remains fully confidential. In order to actually “pierce the veil” of your LLC, the interested party would have to subpoena the office of your registered agent. So while you may not remain fully anonymous, your Montana LLC does act as a shield from outside parties who may be looking to cash in.

Montana LLC or Montana Corporation? Final Answer.
The Montana LLC is probably your best choice when you factor in fees and taxes. A Montana LLC will only get taxed once, in the form of personal income taxes for each member. A Montana corporation will be subject to double taxation: first through a state corporate tax, and second on the individual tax returns of shareholders. No matter what type of small business entity you have, you have to pay quarterly estimated taxes if the business owes income taxes of $1,000 or more. Corporations only have to pay quarterly estimated taxes if they expect to owe $500 or more in tax for the year. All that said, the answer to whether the Montana LLC or the corporation is better really comes down to whether you plan to operate a small business or intend to grow your business into something much larger. If you

To start a corporation in Montana, you must file Articles of Incorporation with the Secretary of State. Montana’s Secretary of State’s office has gone completely digital to make the online business formation process easier. The Articles of Incorporation cost $70 to file. Once filed with the state, this document formally creates your Montana corporation. When you hire Active Filings we do this for you, saving you time, and easing your stress, allowing you to focus on your business.

Filing your Montana Articles of Organization with the Montana Secretary of State will form your LLC. The Articles of Organization cost $70 to file and can be completed online. Once filed and accepted by the state, this document formally creates your Montana LLC.

What is a Montana Annual Report? 
A Montana annual report is a report that every active LLC and corporation in the state of Montana must file in order to maintain good standing. The annual report details a company’s activities throughout the fiscal year. Annual reports are intended to give shareholders and investors information about the company’s activities and financial performance.

How do I file an annual report in Montana? 
All businesses in Montana are required to submit an Annual Report to the Secretary of State each year.

How much does it cost to file an annual report in Montana? 
The filing fee is $20 if filed before 5pm (MST) on April 15. If you miss the filing date, you will be assessed an extra $15 fee. Montana allows you to pay with a credit or debit card.

When are Montana annual reports due?
Businesses must file an Annual Report each year by April 15.

Can I file my Montana annual report online? 
You definitely can. The Montana Secretary of State encourages all businesses to file their Annual Report online. Head over to the state’s business portal. Online filings are processed immediately, and confirmation is sent as soon as your payment is processed. Filing online ensures the fastest confirmation time for your annual report. However, if you prefer to go old school, you can also download a paper form which you can then fill out with all pertinent information and then send it via mail.

Mail your Annual Report to:

Montana Secretary of State
P.O. Box 202801
Helena, MT 59620-2801

Make your check payable to: Secretary of State

Montana has a progressive state income tax with a top rate of 6.9%. That rate is higher than the national average, but Montana only has a few other types of taxes. There is no sales tax in the state and property taxes are below the national average. Although Montana does not have a sales tax and businesses don’t have to pay or collect sales tax, corporations are still subject to Montana’s corporate tax at a flat rate of 6.75% of taxable income. Montana S corporations are not required to pay the state’s corporate income tax. However, an individual S corporation shareholder will, akin to a Montana LLC owner, owe tax on his or her share of the S corporation’s income. C corps that conduct sales and don’t own or rent any property in the state can apply for an alternative tax at a 0.5% rate of gross sales. C corps that are earning revenue from within Montana, but not subjected to the Corporate License Tax, must pay a complementary corporation income tax.

In Montana, do I also have to file an income tax return for my LLC?
Short answer is no, your LLC won’t need to file a tax return because the profits from your LLC will “pass-through” to you and any other LLC members.

If pass-through taxation of the LLC is not desired, members may elect to be taxed as a corporation by completing IRS Form 8832. If this election is made, the LLC is taxed as a C corporation by the federal government. Additionally, an LLC can be taxed like an S corporation by filing IRS Form 2553.

Okay, so what tax forms do I need to file for an LLC in Montana?
Single-member LLCs must file Form 2, or Form 2EZ for non residents. Multi-member LLCs must file Form PR-1.

What information is required on these various LLC tax return forms?
The basics for filing in Montana are pretty straight forward. You’ll file Form 2 (Montana Individual Income Tax Return) and Form 2EZ. As with all tax forms you’ll need to enter your name, address, social security number, date of birth, residency status, and married or jointly filing. Beyond the basic information you’ll also need:

• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest

Form PR-1 (Montana Partnership Information and Composite Tax Return) requires businesses to report their income, gains, losses, deductions, credits, etc. A partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax or information returns.

• Partners’ Distributive Share of Income Items (Form 1065, Schedule K)
• Partners’ Distributive Share of Deduction Items (Form 1065, Schedule K)
• Partners’ Distributive Share of Montana Additions and Deductions to Income

Form 1065 gives the IRS a snapshot of the company’s financial status for the year. The partners must report and pay taxes on their shares of income from the partnership on their tax returns. Partners must pay income tax on their earnings regardless of whether the earnings were distributed.

A Schedule K-1 is a tax document used to report the incomes, losses, and dividends of a business’s partners or an S corporation’s shareholders. The Schedule K-1 document is prepared for each individual partner and is included with the partner’s personal tax return. An S corporation reports activity on Form 1120S, while a partnership reports transactions on Form 1065.

What tax form does a Montana corporation need to file?
Any C corporation doing business in Montana has to file a Montana Corporate Income Tax Return (Form CIT) and pay a corporate income tax.

S corporations file Form CLT4S. All corporations doing business in Montana must file a Corporate Income Tax Return unless exempted under Montana Code 15-31-102, which grants tax-exempt status to certain corporations. Those corporations must provide copies of the following:

1. Affidavit showing the character of the organization, the purposes for which it was organized, its
actual activities, the sources and disposition of its income, and whether any of its income may
inure to the benefit of any private shareholder or individual. (The affidavit does not need to be
notarized).
2. Articles of Incorporation.
3. Corporate By-laws.
4. Latest financial statement showing assets, liabilities, receipts and disbursements; and
5. IRS exemption certificate or letter, if available.

What’s the Montana corporate tax income rate?
The standard corporate tax rate is a flat rate of 6.75%.

How are Montana corporate income taxes calculated?
Montana corporations are subject to Montana’s corporation license tax at a flat rate of 6.75% of taxable income. Example: For the 2018 tax year, your Montana corporation had taxable income of $100,000. Other things being equal, the corporation will owe Montana corporate income tax in the amount of $6,750 (6.75% of $100,000).

What’s the personal income tax rate in Montana?
Montana has a progressive income tax system with seven income brackets and rates ranging from 1% to 6.9%. All taxpayers in Montana are subject to the same brackets regardless of their tax filing status. No cities in the state levy local income taxes.

Income Taxes

$0.00-$2,999                    1%

$3,000.00-$5,199            2%

$5,200.00-$7,999            3%

$8,000.00-$10,799          4%

$10,800.00-$13,899        5%

$13,900.00-17,899          6%

$17,900.00+                     6.9%

When are my business tax returns due?
Your Montana Corporate Income Tax Return (Form CIT) is due on the 15th day of the 5th month following the fiscal year end. For example, if your tax year ends on September 30, your return is due on February 15.

What if I need an extension?
Montana business extensions are automatic, which means there is no application to submit. A Montana extension will give you 6 extra months to file your corporation return, moving the filing deadline to November 15 (for calendar year taxpayers). However, a tax extension only gives you more time to file, not to pay. Your Montana corporation income tax must be paid by the original due date (May 15) or interest and penalties will apply. Montana charges a penalty for filing after the due date. The penalty starts at a $50 minimum, or 5% of the outstanding tax per month up to a maximum of 25% of the tax due. Ouch.