An S-Corp election is a special IRS tax classification that allows a business to pass income, losses, deductions, and credits directly to its shareholders—avoiding corporate-level taxation. It’s commonly used by small businesses to reduce overall tax liability.

To qualify for S-Corp status, your business must:

• Be a U.S.-based corporation or LLC
• Have 100 or fewer shareholders
• Only issue one class of stock
• Have eligible shareholders (individuals, estates, certain trusts — not partnerships or nonresident aliens)

• Lower Self-Employment Taxes: LLC owners taxed as S-Corps only pay self-employment tax on their salary, not on the full business profit — resulting in major tax savings.
• Avoid Double Taxation: S-Corps don’t pay federal income tax at the entity level. Income is taxed once at the shareholder level.
• Simpler Tax Filing: S-Corps file Form 1120S and issue Schedule K-1s to shareholders, allowing each to report their share of income on personal returns.

The S-Corp election may be applied retroactively, depending on your specific situation. Generally, it must be filed within 75 days of the start of the calendar year or the beginning of your business to be effective for that year. Otherwise, it will take effect the following tax year.

After electing S-Corp status, your business must:

• Continue to meet eligibility rules (e.g., U.S. residents, max 100 shareholders, one class of stock)
• File Form 1120S annually
• Provide Schedule K-1s to each shareholder
• Pay a reasonable salary to shareholder-employees through payroll
• Comply with any applicable state-level S-Corp requirements

Yes. A single-member or multi-member LLC can elect S-Corp status by filing Form 2553. This election does not change your legal structure—only how your business is taxed.

 As an owner-employee, you must pay yourself a “reasonable salary” subject to payroll taxes. Additional profits can be distributed as dividends, which are not subject to self-employment taxes.