Starting a business in Illinois costs as little as $150 for an LLC filing fee. The state income tax rate is up to 5.0%, with a 9.5% corporate tax rate. Below we compare LLC vs. S-Corp vs. Sole Proprietorship costs, walk through the 6 steps to form your business, and provide calculators pre-filled for Illinois.
LLC vs. S-Corp vs. Sole Proprietorship — 2026 estimated costs
| Entity Type | Filing Fee | Annual Fee | Franchise Tax | 1st Year Total | Ongoing/Yr |
|---|---|---|---|---|---|
| LLC | $150 | $75 | -- | $375 | $225/yr |
| S-Corp | $300 | $200 | -- | $650 | $350/yr |
| Sole Proprietorship | $75 | -- | -- | $75 | -- |
High combined corporate rate (7% income + 2.5% replacement tax). Personal property replacement tax adds cost.
Your LLC name must be unique in Illinois and include"LLC" or"Limited Liability Company." Search the Illinois Secretary of State database to verify availability. Consider reserving the name (typically $10-25 for 60-120 days) while you prepare your filing.
File your Articles of Organization (or Certificate of Formation) with the Illinois Secretary of State. The filing fee is $150. You can file online in most states for faster processing. Include your registered agent information, member names, and business purpose.
Apply for a free Employer Identification Number (EIN) from the IRS at irs.gov. You need this for opening a bank account, hiring employees, and filing taxes. The online application takes about 5 minutes and you receive your EIN immediately.
Register with the Illinois Department of Revenue for state income tax withholding and sales tax collection (6.3% state rate). If you have employees, register for unemployment insurance and workers' compensation. The state income tax rate is up to 5.0%.
Check Illinois and local requirements for business licenses, professional licenses, and permits. Requirements vary by industry and location. Common needs include a general business license, zoning permit, and industry-specific permits (food service, construction, healthcare, etc.).
Open a dedicated business bank account to maintain your LLC's liability protection. You may need your Articles of Organization, EIN, and operating agreement. Keep personal and business finances strictly separate — commingling funds can pierce the corporate veil and expose personal assets.
Total estimated first-year cost: $375 (filing fee + registered agent + annual fees). Ongoing annual cost is approximately $225/yr after the first year.
Illinois COL index of 104 is slightly above average, driven by Chicago metro housing and taxes.
Downstate Illinois has some of the lowest living costs in the Midwest (COL 80-85).
High property taxes are the biggest ongoing cost burden in Illinois.
Illinois has a flat 4.95% income tax rate — simple to calculate and applies to all income levels equally.
Illinois does NOT tax any retirement income — Social Security, pensions, 401(k), and IRA distributions are all exempt.
Chicago adds its own taxes on top of state rates — the combined sales tax rate in Chicago is 10.25%, the highest of any major city.
Illinois has a state estate tax with a $4M exemption — well below the federal exemption.
National averages based on mean of all 50 states + DC. "pp" = percentage points.
The Illinois LLC filing fee is $150. Including a registered agent ($150/yr) and annual fees ($75), the first-year total cost is approximately $375. This is $18 above the national average filing fee.
An LLC is simpler and cheaper to maintain in Illinois ($375 first-year cost vs. $650 for an S-Corp). An S-Corp can save self-employment taxes if you earn over ~$50K in profit by splitting income into salary and distributions. Most Illinois businesses start as an LLC and elect S-Corp taxation later when profits justify the additional complexity and payroll costs.
Illinois businesses face: personal income tax on pass-through income (up to 5.0%), corporate income tax at 9.5% for C-Corps, franchise tax, sales tax at 6.3%, payroll taxes, and property tax at 2.2% on business-owned real estate.
Requirements vary by business type and location. Most Illinois businesses need: (1) a state business license or registration, (2) a local business license from your city/county, (3) industry-specific permits or professional licenses, and (4) a sales tax permit if selling taxable goods. Check with the Illinois Secretary of State and your local city clerk for specific requirements.
Business formation costs are estimates based on Illinois Secretary of State fees as of 2026. Tax rates use 2026 data. Registered agent fees based on market averages. Actual costs may vary. Consult a CPA or business attorney for personalized advice. Last updated: April 2026.