Michigan Tax Guide
LLC Taxes
Michigan LLCs are not taxed as a separate entity by default. Instead taxes pass through to the owners who report business income on their personal returns. However you have up to 4 different ways your LLC can be taxed — and choosing the right one can save you thousands of dollars per year.
Option 1 — Default: Pass-Through Taxation
This is automatic — you don't have to do anything to elect it. If you have one member, the IRS treats your LLC as a "disregarded entity" and you report all business income on your personal tax return using Schedule C. Multi-member LLCs file a partnership return.
What you pay in Michigan: Michigan's flat 4.25% individual income tax rate on your share of LLC profits. You also pay federal self-employment tax (15.3%) on net profits.
Single-Member LLC
Report income on IRS Schedule C (attached to Form 1040). Michigan: report on Form MI-1040. No separate LLC tax return needed.
Multi-Member LLC
LLC files IRS Form 1065 (Partnership Return). Each member gets a Schedule K-1. Members report K-1 income on personal Form 1040 and MI-1040.
Key Filing Deadlines
Where to File
Option 2 — S-Corp Tax Election
You can elect to have your LLC taxed as an S-Corporation by filing IRS Form 2553. This lets you pay yourself a reasonable salary and take the remaining profits as distributions — which are NOT subject to self-employment tax. This can save $5,000–$20,000+ per year.
💡 When Does S-Corp Make Sense?
Most accountants recommend waiting until your LLC has at least $60,000–$70,000 in net profit per member before making the S-Corp election. Talk to a CPA before making this election.
Where to File
Option 3 — C-Corp Tax Election
You can elect to have your LLC taxed as a C-Corporation by filing IRS Form 8832. Michigan charges a 6% Corporate Income Tax (CIT) on C-Corps. This option triggers double taxation and is almost never the right choice for a small LLC.
⚠ Caution
The C-Corp election triggers Michigan's 6% Corporate Income Tax if your gross receipts exceed $350,000. Do not make this election without consulting a CPA.
Where to File
Option 4 — Michigan Flow-Through Entity (FTE) Tax
Michigan offers an optional Flow-Through Entity Tax that allows multi-member LLCs and S-Corps to pay Michigan state income tax at the entity level (4.05% rate). The benefit: it's fully deductible on the federal return — bypassing the federal $10,000 SALT deduction cap.
Where to File
Michigan Sales Tax
If your LLC sells taxable goods or services in Michigan, you must collect and remit 6% sales tax. Michigan has NO local sales taxes — the state rate of 6% is the only rate.
Where to Register and File
Michigan Employer / Payroll Taxes
If your LLC has any employees, you must register for and pay Michigan payroll taxes — withholding Michigan income tax at 4.25% and paying Michigan Unemployment Insurance (UI) tax.
Where to Register and File
⚠ City Income Taxes
24 Michigan cities charge their own local income taxes ranging from 1% to 2.4% — including Detroit, Grand Rapids, Lansing, and Flint. If your business operates in any of these cities, you have separate local filing obligations.
Michigan Tax Guide
S-Corp Taxes
An S-Corporation in Michigan is a pass-through entity — the business itself does not pay federal income tax. Profits and losses flow through to shareholders who report them on personal returns. Michigan recognizes the federal S-Corp election automatically.
Federal S-Corp Return — IRS Form 1120-S
Your S-Corp must file IRS Form 1120-S every year. The S-Corp itself does not pay federal income tax. Each shareholder receives a Schedule K-1 showing their share of income which they report on their personal Form 1040.
Salary Requirement
As a shareholder-employee you must pay yourself a "reasonable salary" subject to payroll taxes. Additional profits taken as distributions are NOT subject to self-employment tax — this is where the savings come from.
Payroll Forms Required
File Form 941 quarterly. File W-2 forms for all employees including yourself by January 31. File Form 940 annually for federal unemployment tax.
Key Deadlines
Where to File
💡 Michigan FTE Tax Also Available for S-Corps
Michigan S-Corps are eligible to elect the Flow-Through Entity (FTE) Tax, allowing the business to pay Michigan income tax at the entity level (4.05%) instead of shareholders paying individually. File Form 5772 via Michigan Treasury Online.
Michigan Tax Guide
C-Corp Taxes
C-Corporations pay their own federal and state income taxes — separate from the owners. Michigan imposes a flat 6% Corporate Income Tax (CIT) on C-Corps with over $350,000 in gross receipts. When profits are distributed to shareholders as dividends, shareholders pay personal income tax again — this is double taxation.
Federal Corporate Return — IRS Form 1120
Your C-Corp files IRS Form 1120 annually. The corporation pays federal income tax at a flat 21% rate on taxable income. Shareholders do not report corporate income on personal returns unless dividends are distributed.
Key Deadlines
Where to File
⚠ Double Taxation Explained
When your C-Corp earns $100,000 in profit, it pays 21% federal tax ($21,000) leaving $79,000. If you distribute that as a dividend, you pay personal income tax on it again. Michigan also taxes dividend income on your personal MI-1040. This is why most small businesses avoid the C-Corp structure.
Michigan Tax Guide
Sole Proprietorship Taxes
Sole proprietorship taxes are the simplest of any business structure. There is no separate business tax return. All business income and expenses are reported directly on your personal tax return. You and your business are legally and financially the same entity.
Pass-Through — Schedule C on Personal Return
All business income is reported on IRS Schedule C attached to your personal Form 1040. Net profit flows to your personal return where you pay federal income tax at your personal rate plus self-employment tax of 15.3%.
Michigan: Report business income on Form MI-1040. Michigan taxes at a flat 4.25% rate on all income including business profit.
Key Deadlines
Where to File
💡 Common Deductions for Sole Proprietors
Deductible expenses on Schedule C include: home office, vehicle mileage (67 cents/mile in 2024), business meals (50%), health insurance premiums, business phone and internet, equipment, professional services, and advertising. Keep receipts for everything.
Michigan Tax Guide
Partnership Taxes
Partnerships are pass-through entities — the partnership itself does not pay federal or Michigan income tax. Income and losses flow through to each partner who reports their share on personal returns. Each partner pays self-employment tax on their share of profits.
Partnership Return — IRS Form 1065
The partnership files IRS Form 1065 each year as an informational return. The partnership itself pays no tax. Each partner receives a Schedule K-1 showing their share of income. Partners report K-1 income on their personal Form 1040.
Michigan: Multi-member partnerships may need to file a Michigan Partnership Return (Form MI-1065). Each partner reports their share of Michigan income on Form MI-1040 at the 4.25% flat rate.
Key Deadlines
Where to File
💡 FTE Tax Also Available for Partnerships
Michigan partnerships are eligible for the Flow-Through Entity (FTE) Tax election — paying Michigan income tax at the entity level (4.05%) instead of partners paying individually. File Form 5772 via MTO.
Michigan Tax Guide
Nonprofit Taxes
Nonprofits with 501(c)(3) status are exempt from federal and Michigan income taxes on income related to their mission. However they must file annual information returns with the IRS, may owe taxes on unrelated business income, and must comply with Michigan state requirements.
IRS Form 990 — Annual Information Return
Even though nonprofits don't pay income tax, they must file an annual information return with the IRS. Failure to file for 3 consecutive years results in automatic revocation of your tax-exempt status.
Form 990-N (e-Postcard)
For organizations with gross receipts of $50,000 or less. Simplest filing — just confirm basic information online. Free to file at IRS.gov.
Form 990-EZ
For organizations with gross receipts under $200,000 and total assets under $500,000.
Form 990 (Full)
For organizations with gross receipts of $200,000 or more OR total assets of $500,000 or more.
Unrelated Business Income (UBIT)
If your nonprofit earns income from activities unrelated to its mission, that income is taxable. File Form 990-T to report and pay Unrelated Business Income Tax.
Key Deadlines
Where to File
⚠ Michigan Charitable Solicitation Registration
If your Michigan nonprofit plans to solicit donations and expects to raise more than $25,000 per year, you must register with the Michigan Attorney General's Charitable Trust Section before you start fundraising.
💡 Michigan Sales Tax Exemption
Qualifying Michigan nonprofits can apply for a Michigan Sales Tax exemption using Form 3372. This means the organization does not pay sales tax on purchases made for its exempt purpose. You must apply separately — 501(c)(3) status alone does not automatically exempt you from Michigan sales tax.