Have Your LLC Taxed as an S Corp - S Corp Election Form 2553

Your business earns revenue

You deduct any allowable business expenses

The amount remaining is your business profit, which you pay to yourself

You pay self-employment tax of around 15 percent on any profits

You pay federal tax at various income bands on any profits

You pay state tax on any profits

An Example of How an LLC Filing as an S Corporation Can Save Money

Let's illustrate this with an example.

Self-Employment Tax as an LLC

Under a standard LLC tax arrangement where the income “flows through” to your 1040 tax return and business schedule C, you would pay self-employment tax on all of that $90,000. At approximately 15 percent, the tax on that money would be $13,500. You would still pay standard federal and state taxes on any earnings.

Payroll Tax as an S Corporation

If you choose to be taxed as an S Corporation, you could say that your salary is $50,000 and take the other $40,000 out of your business as a distribution. You would pay standard payroll tax on that $50,000 for a total of around $7,500. You would not pay any payroll or self-employment tax on the $40,000 distribution, saving you around $6,000. You would still pay standard federal and state taxes on both your salary and your distribution.

120,000$

Your business revenue a year

$90,000

profits a year

$30,000

expenses a year

$63000

Estimated yearly income

$50000

$100000

$26000

Salary you could pay yourself as S Corporation

$31500

$63000

As a Sole Propreitor

Slef Employment Taxes paid $63,000 as a Sole Propreitor

Taxes Paid

$9639

As a S Corporation

With a salary of $26,000 and a dividend of $37,000

Taxes Paid

$3978

Total Savings

$5661

Check the Savings Yourself with our S Corporation Tax Calculator

The S Corporation tax calculator lets you choose how much to withdraw from your business each year, and how much of it you will take as salary (with the rest being taken as a distribution). It will then show you how much money you can save in taxes.

Use our S Corporation Tax Calculator to view your potential tax savings

Go to our S Corporation Tax Calculator

One important part of the S Corporation Tax Election is that you must pay yourself a fair salary, which the IRS defines as “reasonable compensation.” If you do not, the IRS could audit you and levy taxes and penalties. For example, you cannot pay yourself a salary of $10,000 and take $80,000 in distributions. When it comes to setting a fair salary, look at what full-time roles similar to yours are paying someone with similar expertise and experience, and use that as a baseline. Speak with your accountant or attorney for more information.

Go to the Internal Revenue Service website

Find the section on S Corporation Tax Elections

Download form 2553

Gather the required information for form 2553 and fill it in

Send the form back to the IRS, typically by mail or fax

Wait for notification of acceptance of your tax election

Does filing form 2553 remove any LLC protections?

No. You still get the same limited liability protections as with a regular limited liability company.

How much could I save by being treated as an S Corporation for tax purposes?

You could save yourself thousands of dollars a year. We’ve got a handy calculator that shows you exactly how much you could reduce your self-employment tax burden.

Do I have to file my S Corporation Tax Election at a certain time?

Yes. There are certain limitations on when you can file form 2553. This article gives you all the details you need.

Can I file an S Corporation Tax Election if there are more owners in the business?

Yes. S Corporation Tax Elections are available to most LLCs. For more information, speak to your accountant or attorney.

Prepare and File an S Corporation Tax Election with Form 2553

How LLCs Are Normally Taxed