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South Dakota Corporation
Advantages and Disadvantages



South Dakota Corporation and Taxes



South Dakota Corporation - Articles of Incorporation must be drafted and submitted to the South Dakota Secretary of State, Corporations Division. Once articles of incorporation have been successfully filed, your South Dakota Corporation has been formed and this begins its existence as a South Dakota corporate entity.

Should I form a South Dakota Corporation?

A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages and Disadvantages
of a South Dakota Corporation

Advantages of a Corporation

  • Shareholders have limited liability for the corporation's debts or judgments against the corporations.
  • Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
  • Corporations can raise additional funds through the sale of stock.
  • A corporation may deduct the cost of benefits it provides to officers and employees.
  • Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
  • A corporation pays 15% federal income tax on taxable income up to $50,000; 25% tax on income from $50,001 - $75,000; 34% tax on income from $75,001 - $100,000; 39% tax on income from $100,001 - $335,000; and 34% tax on income over $335,000.
  • A sole proprietor who filed a federal income tax return under the status of married, filing jointly, would pay 15% federal income tax on taxable income up to $35,800; 28% tax on income from $35,801 to 86,500; and 31% tax on income over $86,501.

Disadvantages of a Corporation

  • The process of incorporation requires more time and money than other forms of organization.
  • Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
  • Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.

Federal Tax Forms for Regular or "C" Corporations

  • Form 1120 or 1120-A: Corporation Income Tax Return
  • Form 1120-W Estimated Tax for Corporation
  • Form 8109-B Deposit Coupon
  • Form 4625 Depreciation


South Dakota’s Business Tax Climate Ranks 1st

South Dakota ranks 1st in the State Business Tax Climate Index, which measures the impact on business of five major elements of the tax system: the percentage of income taken by all taxes, the individual income tax rates, the corporate income taxes, the sales tax rate, and the complexity of the tax system. Neighboring states ranked as follows: North Dakota (39th), Minnesota (48th), Iowa (28th), Nebraska (35th), Wyoming (7th) and Montana (17th).

South Dakota’s State/Local Tax Burden among the Nation’s Lowest

Over the past 14 years, South Dakota’s tax burden has consistently ranked among the nation’s lowest. Estimated now at 9.0% of income, South Dakota’s state/local tax burden percentage stands at 42nd nationally, well below the national average of 10.0%. South Dakota's State-Local Tax Burden, 1970-2004

South Dakota Levies No Individual Income Taxes

South Dakota levies no state individual income tax, joining Alaska, Florida, Nevada, Texas, Washington and Wyoming as the only states to do so.

South Dakota Levies No Corporate Income Tax

South Dakota collects no state corporate incomes taxes, joining Nevada, Texas, Washington and Wyoming as the only states to collect neither corporate nor individual income taxes.



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