Planning for a City That Keeps Growing
Sioux Falls has added more than 20,000 residents since 2020, by the Census Bureau's estimates, and its building activity has kept pace. That growth creates planning opportunities for the people who own its clinics, rental buildings, contracting firms and shops. With no South Dakota income tax, almost every income tax decision is federal. Sioux Falls also has two specific changes coming in 2027: Lincoln County's new county tax and the scheduled rise in the state sales tax rate. BOMCAS meets with Sioux Falls owners during the year to plan around both.
Federal strategies that apply anywhere in the state are in South Dakota tax planning; here we look at the choices Sioux Falls owners and families face.
Practice and Professional Structure
Physicians, dentists, therapists, veterinarians, lawyers and financial advisers practise in large numbers in Sioux Falls. The choices that matter most for them are federal:
- Whether an S corporation election makes sense, and what reasonable salary to pay through payroll.
- Which retirement plan fits: solo 401(k), safe harbour 401(k), cash balance plan or SEP, depending on staff.
- How partners or shareholders split income, and how buy-ins and buy-outs are structured for tax.
- Whether working in Minnesota or Iowa, such as outreach clinics or cross-state consulting, creates a filing obligation that affects the structure.
Real Estate and Development
The city's 2024 development summary counted 1,256 new apartment units among 2,214 new housing units. Investors and developers in that market have planning questions that cost real money if they are answered late:
- Cost segregation studies, which can move part of a building's cost into shorter-lived property that qualifies for the permanent 100 percent bonus depreciation on property acquired after January 19, 2025.
- The passive activity rules that limit rental losses unless an owner qualifies as a real estate professional or materially participates in a short-term rental.
- Like-kind exchanges when trading up from smaller rentals to larger buildings.
- Choice of entity for holding property, usually an LLC taxed as a partnership.
Construction contracts also need state-level planning. A developer acting as a prime contractor, or building for lease, can owe contractor's excise tax, including under the $100,000 rule for buildings built for lease.
Planning Around the 2027 Rate Changes
Two changes take effect in 2027. On January 1, Lincoln County, which includes south Sioux Falls, Harrisburg and Tea, begins a 0.5 percent county gross receipts tax on taxable sales in the county, used for property tax credits on owner-occupied homes. On July 1, under current law, the state rate goes from 4.2 percent to 4.5 percent. For Sioux Falls businesses, planning means:
- Reviewing contracts, subscriptions and leases that bill across either date.
- Pricing fixed bids for work in the Lincoln County part of the metro with the new tax in mind.
- Timing large taxable purchases where the timing is genuinely flexible.
- Updating menus and price lists where prices include tax.
Homeowners in the Lincoln County part of Sioux Falls should also see a credit on the county portion of their property tax funded by the new tax.
Moving to Sioux Falls From Minnesota or Iowa
Both neighbouring states tax income, so moving to Sioux Falls can save a household real tax. The savings depend on when the move is complete and how the former state sources large items such as business sales, bonuses, deferred compensation and stock options. Before a move, we look at what to recognise before and after the move date, and what records will show the move is real: a Sioux Falls home or lease, a South Dakota driver license and vehicle registration, voter registration, and closing ties in the former state.
Owners With Businesses on Both Sides of the Line
Some families live in Sioux Falls and own a business or farmland in Minnesota or Iowa. That income stays taxable in the state where it is earned, but structure, compensation and the location of management can affect how much is taxed there. We model the options before changes are made.
Selling or Passing On a Sioux Falls Business
Many Sioux Falls businesses are owner-run or family-owned, and sooner or later their owners plan an exit. For a South Dakota resident, the gain on a sale is taxed only federally, so the structure of the deal matters most. That includes an asset sale or a stock sale, how the price is split among equipment, goodwill and a non-compete, whether an installment sale spreads the gain, and whether family members or employees buy in over time. Starting two or three years before a sale leaves room to clean up the books, settle owner loans and choose the structure, instead of accepting whatever the buyer proposes.
Year-End Checklist for Sioux Falls Owners
- Project federal income for this year and next.
- Decide on equipment and building improvements, and on depreciation methods.
- Review owner salary, distributions and retirement contributions.
- Confirm Minnesota and Iowa filings for any activity there.
- Update sales tax settings for 2027 and review contracts that bill across the changes.
Sioux Falls Tax Planning Questions
Should my Sioux Falls practice be an S corporation?
Often it should, for federal self-employment tax savings, but only with a reasonable salary through payroll. We compare the payroll costs, retirement plan options and any Minnesota or Iowa activity before recommending it.
How does Lincoln County's new tax affect Sioux Falls businesses?
From January 1, 2027, taxable sales received in Lincoln County, including the southern part of Sioux Falls, Harrisburg and Tea, carry an extra 0.5 percent county tax. Contracts, bids and pricing for that area should account for it.
Can a cost segregation study help a Sioux Falls apartment owner?
Often yes. It moves part of the building's cost into shorter-lived property, which can qualify for 100 percent bonus depreciation if acquired after January 19, 2025. Passive loss limits still apply.
I'm moving from Minnesota to Sioux Falls. What should I plan for?
Your Minnesota part-year return, the timing of large income items around the move date, and records showing the move is complete, such as a South Dakota license, a Sioux Falls home or lease, and voter registration.
Talk to BOMCAS About Tax Planning in Sioux Falls
Planning works from real numbers, so it normally runs alongside business tax preparation and personal tax preparation, with current figures from bookkeeping. Owner pay is settled through payroll, purchase timing affects Sioux Falls sales tax, unfiled years should be cleared through back taxes and late filing first, and Canadians considering a move to or from Sioux Falls should start with cross-border tax. The statewide rules behind the rest of our work are explained on our South Dakota pages for business tax preparation, personal tax preparation, sales and use tax, bookkeeping, payroll, back taxes and late filing and cross-border tax, and the South Dakota overview brings them together.
Send us a short note about your Sioux Falls situation and we will come back with next steps. Reach us through the BOMCAS contact page or the form below, call 780-667-5250 or email info@bomcas.ca. You can also return to the Sioux Falls overview. Nothing on this page is advice for your specific circumstances.