How to Convert an LLC to S Corp

You can change your limited liability company (LLC) to an S corporation (S corp) by filing Form 2553 with the Internal Revenue Service (IRS).

Read our Convert LLC to S Corp guide below to learn how and why to choose the S corp tax designation for your LLC.

• How to Change an LLC to S Corp
• Should I Become a Corporation First?
• When To Elect S Corp for Your LLC
• S Corp Calculator

How to Change an LLC to S Corp

Form 2553 is used by LLCs and corporations to elect the S corp tax classification with the IRS.

It isn’t necessary for an LLC to become a corporation before electing the S corp tax designation.

IRS Form 2553 Instructions

There are three steps to completing Form 2553 and electing S corp status for your LLC:

1. Check S Corp Eligibility
2. Check Form 2553 Due Dates
3. Complete and File Form 2553

Step 1: Check S Corp Eligibility

The following statements must be true in order to elect S corp status:

• Form 2553 was filed on time by an eligible business entity. Eligible business entities include domestic corporations and LLCs
• There are no more than 100 shareholders.
• Shareholders are private individuals
• Shareholders are resident aliens or US citizens.
• The business has only one class of stock.
• Each shareholder consents to the election.

Step 2: Check Form 2553 Due Dates

You must file Form 2553:

• No more than two months and 15 days after the beginning of the tax year that you want the S corp election to be in place
• Any time in the year before the tax year that you'd like the S corp election to be in place
• Businesses can elect a variety of tax years and still be eligible for S corp election. To learn more, view the "General" section of the IRS instructions to Form 2553.

Section I is for late filers. For information on relief for late filers, review the "General" section of the IRS instructions to Form 2553.

Step 3: Complete and File Form 2553

Start by accessing the Form 2553 PDF on the IRS website. For assistance, review the "Specific Instructions" section of the IRS instructions to Form 2553.

How to Complete Form 2553:

Part I
Part one of Form 2553 includes your business's name and address, incorporation date, and tax year.

Applicants without more than 100 shareholders can skip section G.

For help with choosing a tax year in section F, view the instructions.

Section I is for late filers. For information on relief for late filers, review the "general" section of the IRS instructions to Form 2553.

The final section must include the name and address of all shareholders and their signatures consenting to the S corp election.

Part II
You'll only need to complete Part II if you selected box 2 or 4 in Part I, Item F.

Part II can be challenging to complete. We suggest reviewing the "specific instructions" section of the IRS instructions to Form 2553 and consulting with an accountant if you have additional questions or concerns.

Part III
Part III is only for subchapter S qualified trusts. Most small business owners will not complete any of the information in this part.

Part IV
Part IV is rarely used. It is only completed if "a late entity classification election was intended to be effective on the same date that the S corp election was intended to be effective.” If this is the case for your small business, refer to "specific instructions" for Part IV of Form 2253.

Where to Send Form 2553:

Where to send form 2553 depends on which state your principal business, office, or agency is located in. 

State Set 1:

Connecticut, Delaware, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington D.C., West Virginia, Wisconsin

Form 2553 Mailing Address
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999

Form 2553 Fax Number
(855) 887-7734

State Set 2:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming

Form 2553 Mailing Address
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201

Form 2553 Fax Number
(855) 214-7520

If you're electing S corp tax status for your multi-member LLC, your operating agreement must reflect the restrictions of an S corp. We recommend reviewing your operating agreement with an attorney.

Should I Change From LLC to Corporation Before Electing S Corp?

It isn’t necessary for an LLC to become a corporation before electing the S corp tax designation.

There is really only one reason to become a corporation before electing S corp taxation for your LLC.

If you carry-over a significant amount of profit from year to year, then it would make sense to become a corporation taxed as an S corp rather than an LLC taxed as an S corp.

How to Convert an LLC Into a Corporation Taxed as an S Corp:

Step 1: Complete an LLC to corporation conversion at the state level, if allowed. Contact your state’s business division for more information.

Step 2: Complete all requirements for a corporation. Visit our How to Start a Corporation guide and select your state to learn more about corporate bylaws, meeting minutes, the incorporators statement, and more.

Step 3: Complete IRS Form 8832 to change your business entity (as filed with the IRS) from an LLC to a corporation. This form can be backdated 75 days or filed with a future date within 12 months.

Step 4: File IRS Form 2553 to elect S corp for your newly formed corporation as detailed above.

When to Elect S Corp Status for Your LLC

It’s estimated that if a business can pay its owners “reasonable salaries” and at least $10,000 in distributions per tax year, then it would make sense for a multi-member LLC to elect the S corp classification.

NOTE: Most small businesses don’t earn enough profit in the early stages for it to make financial sense to elect S corp status.

Choose S Corp Status if:

• You’re a well-established business owner and know how much profit you’re making each year.
• You already deal with the formalities that come with S Corp statuses, such as bookkeeping and payroll requirements.
• Your business is earning enough to save money with S corp status even after paying the “reasonable salary.”

Choose Default Tax Status if:

• You’re an entrepreneur just starting out and are uncertain of how much profit you’ll make each year.
• You don’t want to deal with formalities such as bookkeeping and payroll requirements.
• Your business isn’t earning enough to save money with S corp status.

LLC to S Corp Tax Consequences

Most small business owners reinvest their profit to grow the business and generate enough profit to offset the additional costs of maintaining an S corp (or to pay a reasonable salary in addition to enough of a distribution to lead to actual tax savings).

Default LLC Tax Structure

In a default tax structure, the LLC’s profit, after expenses, is taxed on the owner(s) personal tax return. The owner then pays self-employment tax on the amount. 

If it’s a multi-member LLC, each owner is taxed on their share of the profit on their personal tax return.

S Corp Election

If you are an “active shareholder” under S corp status — that is, if you have an active role in business operations, you must pay yourself a reasonable salary. 

You must also pay yourself at least about $10,000 in distributions to make the S corp work financially.

Under the right circumstances, S corp owners can save about 16% on self-employment taxes by not paying FICA taxes on distributions. 

Business owners pay both FICA and income taxes on their salary, but any distributions (or draws) are only subject to income taxes.

Should I Become a Corporation First?

It isn’t necessary for an LLC to become a corporation before electing the S corp tax designation.

In fact, we recommend not forming a corporation and being taxed as an S corp. This is because the S corp negates all of the benefits of a corporation.

S Corp Savings Calculator

Our S corp calculator is a useful tool for determining if electing the S corp tax structure is right for your small business.

FAQ

What is an S corp?

An S corporation (S corp) is a tax designation for which an LLC or a corporation can apply. 

Is an S corp an LLC?

No. An S corp is a tax designation for which an LLC or a corporation can elect.

How do you form an S corp?

You can form an S corp by filing Form 2553 with the Internal Revenue Service (IRS).

What are the requirements for an S corp?

S corps must meet four requirements:

• They can have no more than 100 shareholders.
• All shareholders must be private individuals (not other business entities).
• Shareholders cannot be nonresident aliens.
• The business may only issue one class of stock — this means all members must have the same distribution amount.

What are the benefits of an S corp?

Owners of S corps are considered employees of their company and they can save thousands of dollars on self-employment taxes as a result.

Are taxes for LLCs and S corps the same?

No. The default taxes for an LLC and taxes for an S corp are not the same.

With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.

With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.

Both LLCs and S corps benefit from a provision in the Tax Cuts and Jobs Act of 2017 that allows qualifying owners of pass-through entities to deduct 20% of qualified business income (QBI) from their tax returns. However, for S corps, the deduction doesn’t apply to profits paid out as wages.

What is a reasonable salary for an S corp?

Unlike the default LLC business structure, in which owners must pay self-employment tax on all of the company’s profits, owners of S corps are considered employees of the business and only have to pay self-employment tax on a salary they receive. Any other money they take from the company’s profits in the form of disbursements isn’t subject to self-employment tax.

S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.

What is a distribution?

A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.

What is pass-through taxation?

Pass-through taxation is a system of taxation that generally applies to sole proprietorships, partnerships, LLCs, and S corps. In this system, the profits or losses of the business are not taxed at the business level. Instead, they pass through to the owners’ personal tax returns and are taxed at each owners’ personal income tax rate.

What is the S corp tax rate?

There’s no corporate tax rate for S corps. Instead, owners of S corps pay personal income tax on the company’s profits. This rate depends on each owner’s personal income tax bracket.

Can I still use my DBA name if I elect to be an S corp?

LLCs and corporations that operate under a doing business as (DBA) name can choose the S corp election.

How do I pay myself from my LLC?

How LLC owners pay themselves depends on how the LLC is taxed, the number of members, and any agreements regarding profit sharing and sweat equity.

In a single-member LLC (SMLLC) or multi-member LLC (MMLLC), you can pay yourself:

• a distribution that passes through to your individual tax return, or
• a reasonable salary and distribution as an S corp

Read our guide to learn more about how to pay yourself from an LLC article.

What is the difference between an S corp and C corp?

C corporations (C corps) and S corporations (S corps) are two different types of tax statuses. S corps and C corps are often misunderstood to be business structures.

An S corp allows business owners to be taxed as an employee of the business and can reduce your tax burden under the right circumstances. 

Businesses taxed as a C corp face double taxation but sometimes the benefits can outweigh the disadvantage of double taxation.

Learn more in our S corp vs C corp guide.