How to Elect S-Corp Status for Your LLC

File Form 2553 to elect S-Corp tax treatment for your LLC and potentially save on self-employment taxes.

1. Verify your LLC qualifies for S-Corp election. Check that your LLC has 100 or fewer members, all members are U.S. citizens or residents, and you have only one class of membership interests. Single-member and multi-member LLCs both qualify if they meet these requirements.
2. Calculate whether the tax savings justify compliance costs. S-Corp election typically saves money when your LLC profit exceeds $60,000-$80,000 annually. You'll save 15.3% self-employment tax on profits above reasonable salary, but you'll pay $2,000-$5,000 annually in additional payroll processing and compliance costs.
3. File Form 2553 within the deadline window. Submit Form 2553 to the IRS within 75 days of when you want S-Corp treatment to begin. For existing LLCs, this means 75 days from January 1st of the tax year you want the election to start. Late filings require requesting relief.
4. Set up payroll for owner-employees. Establish payroll processing to pay yourself and any other working owners reasonable salaries. The IRS requires owner-employees to receive W-2 wages that reflect fair market compensation for their role and hours worked.
5. File Form 1120S instead of Schedule C. Your LLC will now file Form 1120S (S-Corp tax return) annually and issue K-1s to members instead of reporting business income on Schedule C. Profits above payroll wages flow through to owners without self-employment tax.