S Corp Election for LLCs: A Complete Guide to Form 2553

When your LLC becomes profitable, you might discover an opportunity to reduce your self-employment taxes through S Corporation tax treatment. This election, made using Form 2553, allows LLCs to maintain their legal flexibility while potentially saving thousands in taxes annually.

Here’s everything you need to know about making this election correctly and on time.

What is an S Corp Election for LLCs?

An S Corp election allows your LLC to be taxed as an S Corporation while maintaining its legal structure as a Limited Liability Company. This means you keep all the operational flexibility of an LLC but gain access to potential self-employment tax savings.

Under normal LLC taxation, all business profits are subject to self-employment tax (15.3% for Social Security and Medicare). With S Corp election, only your reasonable salary is subject to these taxes - distributions above your salary are not.

The Two-Step Process

Making an S Corp election for your LLC requires two forms:

Step 1: Corporate Tax Treatment First, your LLC must elect to be taxed as a corporation using Form 8832 (Entity Classification Election). This changes your tax treatment from partnership or disregarded entity to corporate taxation.

Step 2: S Corporation Election Then, file Form 2553 to elect S Corporation treatment. This allows pass-through taxation while maintaining the self-employment tax benefits on distributions.

Critical Filing Deadlines

Timing is everything with S Corp elections. Missing these deadlines can delay your election by an entire tax year:

For New LLCs

• Deadline: 2 months and 15 days from your LLC’s approval date

• Example: If your LLC was approved on June 1st, you must file by August 15th

• Effective: Election takes effect for your first tax year

For Existing LLCs

• Current Year Election: File by March 15th of the current tax year

• Prior Year Filing: Can file anytime during the prior tax year for next year’s election

• Example: To elect S Corp treatment for 2025, file by March 15, 2025, or anytime during 2024

Late Filing Relief

The IRS provides relief for late elections under certain circumstances:

• Extended Deadline: Up to 3 years and 75 days after the proposed effective date

• Requirements: Must show reasonable cause for the delay

• Documentation: Detailed explanation of why the election was filed late

Key Requirements You Must Meet

All Members Must Consent

Every LLC member must sign Form 2553 to consent to the election. This includes:

• Signature on the actual form

• Date of signature

• Complete member information

• Ownership percentage

Eligibility Criteria

Your LLC must meet S Corporation eligibility requirements:

• No more than 100 members

• Members must be individuals, certain trusts, or estates (not corporations or partnerships)

• Only one class of membership interest

• Members must be U.S. citizens or residents

Real-World Tax Benefits

Let’s examine how S Corp election can save money for a profitable LLC:

Without S Corp Election

LLC Annual Profit: $100,000

• Self-employment tax (15.3%): $15,300

• Federal income tax: ~$18,000

• Total Tax Burden: ~$33,300

With S Corp Election

LLC Annual Profit: $100,000

• Reasonable salary: $50,000

• Self-employment tax on salary (15.3%): $7,650

• Federal income tax on full $100,000: ~$18,000

• Total Tax Burden: ~$25,650

• Annual Savings: ~$7,650

Note: This simplified example doesn’t include payroll tax responsibilities on the salary portion or state taxes, which vary by location.

Filing Procedures and Best Practices

Where to File

Send Form 2553 to the appropriate IRS Service Center based on your LLC’s principal business address. The IRS website provides current mailing addresses, which can change.

Required Information

Form 2553 requires detailed information:

• LLC’s complete legal name and EIN

• Date and state of LLC formation

• Business address and type of business

• Tax year information

• All member signatures and details

Documentation to Keep

Maintain copies of:

• Filed Form 2553 with proof of mailing

• Form 8832 (if filed separately)

• All supporting documentation

• Certified mail receipts or delivery confirmations

Common Mistakes to Avoid

Incomplete Member Information

Every member must sign the form. Missing even one signature invalidates the entire election.

Wrong Tax Year Selection

Be careful when selecting your tax year. Most LLCs should use a calendar year unless they have a business purpose for a fiscal year.

Missing Reasonable Salary Requirement

Once you elect S Corp treatment, you must pay yourself a reasonable salary subject to payroll taxes. The IRS scrutinizes compensation that appears artificially low.

State Tax Considerations

Some states don’t recognize federal S Corp elections or impose additional requirements. Research your state’s specific rules.

When S Corp Election Makes Sense

Consider S Corp election when:

• Your LLC generates significant profits (typically $60,000+ annually)

• You can pay yourself a reasonable salary and still have distributions left over

• The administrative complexity is worth the tax savings

• Your business can handle payroll tax obligations

S Corp election might not be beneficial if:

• Your profits are modest

• You prefer simpler tax reporting

• You frequently reinvest all profits back into the business

• Your state imposes additional taxes on S Corporations

Working with Tax Professionals

Given the complexity and permanent nature of this election, consider consulting with:

Tax Attorneys: For legal implications and entity structure advice CPAs: For ongoing tax compliance and planning Payroll Services: To handle salary and employment tax obligations

The cost of professional guidance is typically far less than the potential consequences of making errors.

Reversing the Election

S Corp elections are generally permanent, but can be revoked:

• Voluntary Revocation: All shareholders must consent

• Automatic Termination: If eligibility requirements are violated

• Five-Year Rule: Generally cannot re-elect S Corp status for five years after revocation

State-Specific Considerations

While this guide focuses on federal requirements, remember that states have varying approaches to S Corp elections:

• Nevada: Generally follows federal S Corp elections with no additional state-level corporate income tax

• California: Imposes minimum franchise tax on S Corporations

• New York: Has specific notification requirements

Always verify your state’s requirements before making the election.

Next Steps

If you’re considering S Corp election for your LLC:

1. Evaluate Your Situation: Calculate potential tax savings based on your actual profits

2. Gather Information: Collect all member information and LLC formation documents

3. Prepare Forms: Complete both Form 8832 and Form 2553 accurately

4. File Timely: Don’t wait until the deadline - file as soon as you’re certain

5. Maintain Compliance: Set up payroll systems and maintain proper records

Remember that S Corp election is a significant tax decision that affects your LLC for years to come. The potential savings can be substantial, but the compliance requirements are real and ongoing.

Have questions about S Corp elections or need help with the filing process? Our team at Sagebrush has experience helping Nevada LLCs navigate these complex tax elections while maintaining their operational flexibility.