LLC taxed as an S corp: how to file the S election on Form 2553

The S election changes how the IRS taxes an LLC, not what the LLC is. The state still sees the same company with the same members, operating agreement and annual report. What changes is the federal return: the profit stops flowing through Schedule C (one member) or a partnership return (two or more) and starts flowing through Form 1120-S, with the working owners on payroll. The election is only worth filing if the numbers work for your profit and salary, which the quick check below estimates.

No Form 8832 needed

An LLC is not a corporation by default, and only a corporation can be an S corporation, so it might seem that two forms are needed: Form 8832 to be classified as a corporation, then Form 2553. The Form 2553 instructions remove that step: an entity eligible to elect to be treated as a corporation that meets the S corporation tests is treated as a corporation as of the effective date of the S election and does not need to file Form 8832. One form does both.

The LLC must pass the same tests as any S corporation: a domestic entity, 100 owners at most, only individuals, estates and certain trusts or exempt organizations as members, no nonresident alien member, and economic rights that are identical for every unit. That last test deserves a careful reading of the operating agreement: the instructions treat a company as having one class of stock when all outstanding shares confer identical rights to distribution and liquidation proceeds, so terms that pay one member differently are worth reviewing with a professional before filing. The S corp guide goes through each test.

The deadline: 2 months and 15 days

Form 2553 is due no more than 2 months and 15 days after the beginning of the tax year in which the election should take effect, or at any time during the preceding tax year. The instructions count the two months from the day the year begins to the day before the matching day two calendar months later, then add 15 days. For an existing LLC on a calendar year, that gives March 15, 2027 for S status from January 1, 2027. For a new LLC, the tax year starts on the earliest of the day it first had members, first had assets or began doing business, and an election filed before that day is not valid.

A deadline that falls on a weekend is not covered by the table; file early rather than count on the next business day. An election that arrives after the deadline, with no relief requested, generally takes effect for the following tax year instead.

Who signs, and where it goes

The form must be signed and dated by an officer authorized to sign, such as the president, treasurer or a tax officer; for an LLC, the member or manager with that authority. An unsigned Form 2553 is not considered timely filed. Separately, each owner consents in column K or on an attached consent statement. If the election is filed before the effective date, only those who own the LLC on the day of filing consent. If it is filed on or after that date, everyone who was an owner at any time from the effective date to the filing day must consent, including someone who has since left. Spouses with community property interests both consent.

The original, not a photocopy, is mailed or faxed to the IRS service center for the state where the business is located, as listed in the instructions. The IRS should send a determination within about 60 days. If nothing arrives within 2 months, the instructions say to follow up, and the proof that counts is a certified mail receipt, a stamped copy or the IRS acceptance letter.

Missed the deadline: Rev. Proc. 2013-30

Late filing is common, and the IRS has a simplified path for it. An LLC can ask for relief when it intended to be an S corporation from the date entered on line E, failed only because the form was late, had reasonable cause and acted diligently once it found the mistake, and files within 3 years and 75 days of that date. It explains the reasonable cause on line I or in a statement, and every person who was an owner during the gap states that they reported their income consistently with S status. The top of the form must read "FILED PURSUANT TO REV. PROC. 2013-30." Outside those conditions, relief generally requires a private letter ruling and a user fee.

What changes once the election is accepted

• Payroll. Members who work in the business become employees and must receive a reasonable salary with withholding, quarterly Forms 941, a yearly Form 940 and W-2s (Publication 15). The reasonable salary guide explains how to set it.
• The return. Form 1120-S replaces Schedule C or Form 1065, and each member receives a K-1. Its due date is earlier than the personal return; see the Form 1120-S guide.
• Self-employment tax. It no longer applies to the LLC's profit; payroll taxes apply to the salary instead.
• The state. Most states follow the federal status, but some tax S corporations at the entity level and a few do not recognize the election, so check your state page.

The status then stays in place until it is revoked or terminated. After that, the IRS generally must consent before the same business elects again within five tax years. With a salary at 40% of profit and $2,000 of yearly costs, the election starts to save money from about $25,000 of profit for a single filer; the LLC vs S corp calculator tests your own figures before you file.