Should You File an S Corp Election This Year?

Miranda Kishel
Jul 12
3 min read

Short answer: If your business is generating consistent net income over $40,000–$60,000 and you’re paying self-employment tax as a sole proprietor or LLC, then yes, it’s likely time to consider filing an S Corp election. But timing matters, and you must meet IRS deadlines to get the full benefit this tax year.

Why This Matters

An S Corporation election allows pass-through entities (like LLCs or sole proprietors) to reduce their self-employment tax by splitting income between salary (which is taxed for Social Security and Medicare) and shareholder distributions (which are not). For many small business owners, this can mean $5,000–$15,000+ in tax savings per year.

But if you wait too long to file — or do it incorrectly — you could miss the election deadline and lose those savings for the entire year.

Common Related Questions

When is the S Corp election deadline?

You must file Form 2553 within 2 months and 15 days after the beginning of the tax year for which the election is to take effect — usually March 15 for calendar-year taxpayers.
Missed the deadline? You may still qualify for late election relief (Rev. Proc. 2013-30), but this requires additional documentation and approval.

Who should not file an S Corp election?

Businesses with low or inconsistent profits
Anyone who cannot or will not run payroll correctly
Businesses planning to raise venture capital (C Corps may be better)

What are the payroll requirements?

You must pay yourself a reasonable salary via payroll — meaning you’ll need to:

Use a payroll provider
File quarterly payroll reports
Issue a W-2 at year-end (failure to run payroll properly can result in IRS penalties and disqualification of your S Corp status)

Actionable Tips for Filing an S Corp Election

1. Check your income.

If your net profit is under $40K, you may not save enough to justify the added compliance burden.
If your net profit is over $60K, strongly consider electing S Corp.

2. Talk to a tax strategist or CPA.

They can calculate the exact savings and help you structure payroll and compensation correctly.

3. File IRS Form 2553.

You’ll need to list your business info, ownership percentages, tax year, and officer signatures.
Use IRS Form 2553 instructions for help.

4. Set up compliant payroll.

Services like Gusto, QuickBooks Payroll, or ADP make it easy to stay compliant.

5. Consider retroactive election.

If you missed the March 15 deadline, talk to your advisor about Rev. Proc. 2013-30 relief.

Common Pitfalls to Avoid

Thinking an LLC is automatically an S Corp. You must form the LLC first, then file Form 2553 to elect S Corp tax treatment.
Failing to run payroll. You can’t take 100% of your earnings as distributions — the IRS expects you to pay yourself a reasonable W-2 wage.
Missing deadlines. March 15 is key. If you start a new business mid-year, count 2 months and 15 days from formation.

Final Thoughts

An S Corp election can be one of the most powerful tax strategies for profitable small business owners — but only if done right and timed correctly. If you’re not sure whether it makes sense for your business this year, don’t guess.

Talk to us at Development Theory to review your numbers and walk through your options.

The sooner you act, the more you can save this year.