Indiana LLC Tax Elections — S-Corp & C-Corp Options

Your Indiana LLC can elect different federal tax treatment without changing its legal structure. Indiana automatically follows your federal classification — no separate state election filing needed. For the full tax picture, see our Indiana tax guide. For formation, see how to form an Indiana LLC.

S-Corp Election (Most Common)

When it makes sense: Net LLC income consistently exceeds $50,000-$60,000.

How it saves money:

• Pay yourself "reasonable salary" → subject to payroll taxes (15.3%)
• Take remaining profit as distributions → NO payroll/SE taxes
• Savings on distributions avoid the 15.3% SE tax rate

Indiana-specific:

• Indiana follows federal S-corp election automatically
• No separate Indiana filing needed
• Salary is subject to Indiana withholding (2.95% state + county)
• Distributions are subject to Indiana income tax but not payroll taxes
• Must run Indiana payroll (register at intime.dor.in.gov)

How to elect:

• File IRS Form 2553 by March 15 (for current year)
• Or within 75 days of formation for new LLCs
• All members must consent

C-Corp Election

Less common for small Indiana LLCs.

When it makes sense:

• Planning to retain significant earnings
• Seeking VC/institutional investment
• Indiana corporate tax rate (4.9%) applies at entity level

Indiana impact:

• LLC pays 4.9% Indiana corporate income tax (Form IT-20)
• Dividends taxed again on member personal returns (2.95% + county)
• Double taxation structure

FAQ

Do I need to file anything with Indiana for an S-corp election?

No. Indiana automatically follows your federal classification. File Form 2553 with the IRS and Indiana recognizes it.

Can I switch between elections?

Yes, with restrictions. S-corp to partnership: 5-year waiting period before re-electing S. Consult a CPA for timing implications.

What's a "reasonable salary" in Indiana?

Depends on your role and market. An IT consultant in Indianapolis might need $60,000-$90,000. A property manager might justify $40,000-$60,000. Use Indiana market data for your industry.