S-Corporation by State

What an S corporation is

An S corporation is a federal tax classification under Subchapter S of the Internal Revenue Code. A corporation or LLC that meets the requirements files Form 2553 with the IRS to be taxed as an S corporation. Income, losses, deductions, and credits then pass through to shareholders, avoiding the corporate-level tax of a C corporation.

Eligibility

• Domestic entity, an eligible LLC or a corporation
• No more than 100 shareholders
• Shareholders must be US individuals, certain trusts, or estates
• Only one class of stock

Why owners elect it

Owners who work in the business must pay themselves a reasonable salary, which bears payroll tax. Remaining profit can be taken as distributions that are not subject to self-employment tax. For a consistently profitable business this can reduce total tax, at the cost of running payroll and filing an additional return.

Filing fees

There is no state filing fee for the S election itself, since it is a federal tax status. You pay the fee for the underlying entity, an LLC or a corporation, in your state. Some states also tax S corporations differently, so check your state's rules. Compare state costs on the state fee table.

How to elect

1. Form the LLC or corporation and get an EIN
2. File Form 2553 within the allowed window, generally two months and 15 days from the start of the tax year the election covers
3. Set up payroll and pay yourself a reasonable salary
4. File Form 1120-S annually and issue Schedule K-1s

Read the LLC vs S-Corp comparison for the trade-offs and a worked framework.