S-Corp Election Filing
If your LLC or corporation nets $60K–$80K+ per year, electing S-Corp tax status can save you thousands in self-employment taxes — every year. We prepare and file Form 2553 with the IRS, verify your eligibility, and guide you through the payroll requirement — so you keep more of what you earn without changing your business structure.
How the S-Corp Election Saves You Money
The math is straightforward. Without S-Corp, you pay 15.3% self-employment tax on every dollar of profit. With S-Corp, you only pay it on your salary — not on distributions.
❌ Without S-Corp Election
LLC taxed as sole proprietorship (default)
✅ With S-Corp Election
LLC or Corp taxed as S-Corp (Form 2553)
Annual Tax Savings with S-Corp Election
$7,650
At $120K net income · Savings increase as income grows
The savings scale with income. At $80K net: ~$3,000 saved. At $120K: ~$7,650 saved. At $200K: ~$12,000+ saved. The higher your income above your reasonable salary, the more you save. Below $50K–$60K net income, the payroll costs and complexity often outweigh the savings — talk to your CPA first.
What’s Included with Our S-Corp Election Service
We handle the IRS paperwork. You focus on your business.
Eligibility Review
We verify your entity qualifies: U.S. shareholders, ≤100 owners, one class of stock/membership, and eligible entity type. If you don’t qualify, we tell you before you pay — and explain your alternatives.
Form 2553 Preparation
We prepare your complete Form 2553 (Election by a Small Business Corporation) with accurate entity information, shareholder details, election effective date, and tax year selection.
IRS Filing
We file Form 2553 with the IRS on your behalf. For timely elections (within 75 days), we ensure the filing reaches the IRS before the deadline. You receive confirmation of submission and tracking.
IRS Confirmation Tracking
The IRS sends a confirmation letter (CP261) once your election is accepted. We track this and deliver it to your dashboard. Processing typically takes 60–90 days after filing.
Payroll Setup Guidance
S-Corp requires payroll for shareholder-employees. We walk you through choosing a payroll provider (Gusto, ADP, OnPay), setting a reasonable salary, and meeting quarterly payroll tax deadlines.
Reasonable Salary Framework
The IRS requires a “reasonable salary” — not too low, not too high. We provide a framework for determining the right number based on your role, industry, and location. Your CPA makes the final call.
S-Corp Eligibility Requirements
Not every business qualifies. All five requirements must be met — no exceptions.
✅ Who Qualifies
- Entity type: Domestic LLC or corporation (not a partnership or sole proprietorship without an entity)
- Shareholders: Maximum 100 shareholders (family members can count as one)
- Citizenship: All shareholders must be U.S. citizens or permanent residents
- Stock classes: One class of stock only (though voting and non-voting within that class is OK)
- Eligible shareholders: Only individuals, estates, certain trusts, and certain tax-exempt organizations — not other corporations, partnerships, or non-resident aliens
❌ Who Does NOT Qualify
- Non-U.S. residents: Even one foreign shareholder disqualifies the entire entity
- VC-backed companies: Preferred stock from investors creates a second stock class
- Companies with corporate shareholders: An LLC or corp that owns shares in your company disqualifies you
- Insurance companies and financial institutions: Specifically excluded by statute
- Entities that need multiple stock classes: Common + preferred stock structures are incompatible
The most common disqualifier: Having even one non-U.S. shareholder. If any member or shareholder is not a U.S. citizen or permanent resident, S-Corp election is not available. International founders should remain as a C-Corp (for corporations) or standard LLC (for pass-through). There is no workaround for this requirement.
Critical Deadlines — Don’t Miss These
S-Corp election timing is strict. Missing the window means waiting until next year.
New Businesses
File Form 2553 within 75 days of formation to have S-Corp status effective from day one. This is the most important deadline — miss it and you’re taxed as a sole proprietor (LLC) or C-Corp for the rest of the year.
Existing Businesses
For existing LLCs or corporations, file by March 15 of the current year for the election to take effect January 1 of that year. File after March 15 and the election takes effect January 1 of the following year.
Late Election Relief
Missed your deadline? The IRS offers late election relief under Revenue Procedure 2013-30 if you had “reasonable cause.” We can help you file a late election with a reasonable cause statement — approval isn’t guaranteed but is common for first-time filers.
If you’re forming a new LLC and want S-Corp from day one: File Form 2553 within 75 days of your LLC formation date. We recommend filing it within the first 2 weeks to avoid cutting it close. Our Premium formation plan includes S-Corp election filing. See our plans →
Estimated Tax Savings by Income Level
These are estimates using a reasonable salary of ~55–60% of net income. Actual savings depend on your specific situation — always verify with a CPA.
| Net Income | Reasonable Salary | Distribution | SE Tax Saved | Payroll Cost | Net Annual Savings |
|---|---|---|---|---|---|
| $50,000 | $40,000 | $10,000 | $1,530 | ~$600 | ~$930 ⚠️ |
| $75,000 | $50,000 | $25,000 | $3,825 | ~$600 | ~$3,225 |
| $100,000 | $60,000 | $40,000 | $6,120 | ~$600 | ~$5,520 |
| $120,000 | $70,000 | $50,000 | $7,650 | ~$600 | ~$7,050 |
| $150,000 | $80,000 | $70,000 | $10,710 | ~$600 | ~$10,110 |
| $200,000 | $90,000 | $110,000 | $16,830 | ~$600 | ~$16,230 |
⚠️ At $50K income, the savings are marginal after payroll costs — most CPAs don’t recommend S-Corp below $60K. Estimates assume 15.3% SE tax rate (Social Security 12.4% + Medicare 2.9%). Additional 0.9% Medicare surcharge applies above $200K.
The “Reasonable Salary” Requirement
This is where most S-Corp owners get it wrong — and where the IRS looks hardest.
The IRS requires S-Corp shareholder-employees to pay themselves a “reasonable salary” through actual W-2 payroll before taking any distributions. You can’t pay yourself $10,000 and take the rest as distributions — the IRS considers that abusive and will reclassify your distributions as wages, adding penalties and back taxes.
A reasonable salary is what you’d pay someone with your skills, experience, and responsibilities to do the same job in your industry and location. The IRS uses comparable wages data, industry standards, and the specific duties you perform to evaluate reasonableness.
The goal isn’t to minimize your salary to the lowest defensible number — it’s to set a salary that’s genuinely reasonable and take the remainder as distributions. Most CPAs recommend a salary of 50–60% of net income as a safe starting point, adjusted for your specific situation.
Factors the IRS Considers
- Training and experience: What would a comparable employee with your background earn?
- Duties and responsibilities: Hours worked, decision-making authority, scope of role
- Industry comparables: What do similar businesses pay for the same role?
- Geographic location: Cost of living and local market rates
- Company size and revenue: What can the business reasonably afford?
- Dividends vs. salary history: A sudden salary drop raises flags
Resources: Bureau of Labor Statistics (BLS.gov), Glassdoor, Payscale, and Robert Half salary surveys are good starting points. Your CPA should help you document the rationale.
Payroll Is Required — Here’s What That Means
S-Corp election means you’re now an employee of your own company. That adds one real obligation.
💼 What You Need
A payroll service that handles W-2 paychecks, federal/state payroll tax withholding, quarterly 941 filings, annual W-2/W-3 filing, and year-end tax forms. You cannot simply write yourself a check — it must go through payroll.
💰 What It Costs
Gusto: $40–$80/month. ADP Run: $59+/month. OnPay: $40+/month. Wave Payroll: $20+/month. QuickBooks Payroll: $45+/month. For a single owner-employee, expect $30–$80/month. Factor this into your savings calculation.
📅 Ongoing Obligations
Pay yourself on a regular schedule (monthly or semi-monthly). File 941 quarterly. File 940 annually. Issue W-2 by January 31. File Form 1120-S (S-Corp tax return) by March 15. Your payroll provider handles most of this automatically.
The payroll cost is the primary trade-off. You save 15.3% on every dollar of distributions, but you spend $500–$1,000/year on a payroll service plus the added complexity of filing Form 1120-S instead of Schedule C. At $60K+ net income, the math works clearly in your favor. Below that, the savings may not justify the cost. Run the numbers with your CPA before electing.
S-Corp Election Pricing
Simple, one-time fee. No recurring charges for the election itself.
Election Only
For existing LLCs & corporations
- Eligibility verification
- Form 2553 preparation
- IRS filing
- Confirmation tracking
- Payroll setup guidance
- Reasonable salary framework
LLC + S-Corp Bundle
New LLC with S-Corp from day one
- Full LLC Standard plan, plus:
- Articles of Organization filed
- Operating Agreement
- EIN registration
- Registered agent (1st year)
- S-Corp election (Form 2553)
- Compliance calendar & alerts
Late Election
Missed your deadline?
- Everything in Election Only, plus:
- Late election relief filing
- Reasonable cause statement
- Rev. Proc. 2013-30 compliance
- IRS correspondence handling
Late relief is common but not guaranteed. We assess your likelihood before you pay.
File Late Election →Should You Elect S-Corp? The Decision Framework
S-Corp is powerful — but it’s not for everyone. Here’s the honest breakdown.
✅ S-Corp Makes Sense If…
- Your LLC or corporation consistently nets $60K–$80K+ per year
- All owners are U.S. citizens or permanent residents
- You’re willing to run payroll and pay yourself a W-2 salary
- You have (or will get) a CPA who handles S-Corp returns (Form 1120-S)
- Your business generates active income (not just passive investment income)
- You want to save $3,000–$15,000+/year in self-employment taxes
❌ S-Corp Does NOT Make Sense If…
- Your net income is below $50K–$60K — savings don’t justify the cost
- Any owner is a non-U.S. citizen or non-resident — you’re disqualified
- You’re raising VC or issuing preferred stock — you need C-Corp
- You have more than 100 shareholders
- Your business has highly variable income and may not sustain a reasonable salary
- You want maximum simplicity — S-Corp adds payroll, a more complex tax return, and salary documentation
When in doubt, ask your CPA. The S-Corp election is a tax decision, not a legal one. A CPA can model your specific numbers, determine the right reasonable salary, and tell you exactly how much you’d save versus the added cost and complexity. If you don’t have a CPA yet, get one before electing — you’ll need them for the 1120-S return anyway.
Related Guides & Comparisons
Dig deeper into the S-Corp decision with our detailed comparison guides.
What Our Customers Say
“My CPA recommended S-Corp when my consulting hit $90K. BusinessFormations filed the 2553 and walked me through Gusto setup. First year savings: over $5,000 in self-employment tax.”— Sarah M., Marketing Consultant (Texas LLC, S-Corp elected)
“I missed the 75-day deadline for my new LLC. They filed a late election with reasonable cause and it was approved in about 6 weeks. Huge relief — would have cost me thousands in SE tax for the year.”— Mike T., Web Developer (Colorado LLC, late S-Corp election)
“Formed my LLC and elected S-Corp in the same order. Everything was filed together — Articles of Organization, Operating Agreement, EIN, and Form 2553. Had it all done in under two weeks.”— Rachel P., Freelance Designer (Wyoming LLC + S-Corp)
Frequently Asked Questions
What exactly is an S-Corp election?
An S-Corp is not a type of business — it’s a tax classification you elect with the IRS by filing Form 2553. Both LLCs and corporations can make this election. It changes how your business income is taxed (pass-through, with salary/distribution split) but doesn’t change your legal entity structure. Your LLC stays an LLC; your corporation stays a corporation. The IRS just treats it differently for tax purposes.
At what income level does S-Corp make sense?
Most CPAs recommend S-Corp when net business income consistently exceeds $60,000–$80,000 per year. Below that, the cost of payroll ($500–$1,000/year), the more complex tax return (Form 1120-S vs Schedule C), and the reasonable salary requirement often outweigh the self-employment tax savings. The exact breakeven depends on your specific situation — have your CPA model the numbers.
What’s the deadline for filing Form 2553?
New businesses: within 75 days of formation. Existing businesses: by March 15 of the year you want the election to take effect. Miss these deadlines and you wait until the following year — unless you qualify for late election relief under Rev. Proc. 2013-30. We offer a late election filing service for $99.
Can I elect S-Corp for my LLC?
Yes. This is the most common use case. Your LLC remains a limited liability company at the state level — same Operating Agreement, same liability protection, same entity. The S-Corp election only changes your federal tax treatment. You file Form 1120-S instead of Schedule C, run payroll for yourself, and split income between salary and distributions. LLC taxed as S-Corp guide →
What if I set my salary too low?
The IRS can reclassify your distributions as wages, adding back self-employment tax plus penalties and interest. This is the #1 audit risk for S-Corps. Don’t try to minimize your salary to an unreasonably low number. Use BLS data, salary surveys, and your CPA’s guidance to set a defensible salary. Document your rationale. A salary of 50–60% of net income is a common safe range for most service businesses.
Can I revoke S-Corp election later?
Yes, but there’s a waiting period. Once you revoke, you generally can’t re-elect S-Corp status for 5 years. Revocation requires consent of shareholders holding more than 50% of shares. File a revocation statement with the IRS — it’s effective at the beginning of the next tax year (or the current year if filed by March 15). Think carefully before revoking.
Do I need a new EIN for S-Corp election?
No. Your EIN stays the same. The S-Corp election doesn’t create a new entity — it just changes how the IRS taxes your existing entity. Your bank account, contracts, and licenses are all unchanged.
What happens to my taxes after electing?
You file Form 1120-S (S-Corp return) instead of Schedule C (sole proprietor) or Form 1065 (partnership). This is due March 15. You also issue yourself a W-2 through payroll. The 1120-S generates a K-1 that flows to your personal return. Total tax prep cost is typically $500–$1,500 more than a simple Schedule C return — factor this into your savings calculation.
Is the S-Corp election included in your formation plans?
The S-Corp election is included in our Premium formation plan ($299 + state fee). It’s also available as a standalone service ($49) for existing businesses. Our LLC + S-Corp bundle (Standard plan at $149 + state fee) covers formation plus the election. Compare plans →
I missed the deadline. Can you still help?
Yes. We file late elections under IRS Revenue Procedure 2013-30 for $99. You’ll need a reasonable cause for the late filing (common reasons: didn’t know about the deadline, CPA advised you late, administrative oversight). Approval isn’t guaranteed, but the IRS grants late relief in the majority of cases for first-time filers with reasonable cause. We assess your likelihood before you pay.
Start Saving on Self-Employment Tax
S-Corp election takes one form — and can save you $3,000–$15,000+ per year. We prepare Form 2553, verify your eligibility, and guide you through payroll setup.
From $49 • Eligibility verified first • Late elections available
