The exact steps required when electing S-corporation status will depend on whether you have already formed a corporation or LLC. If you have not yet registered your business, check out our more specific guide on forming an LLC. The guide below outlines the most common steps to electing S-corp status as either an LLC or a C-corp, but you should always do research into the specific requirements of your jurisdiction. You can contact the agency that regulates income taxes in your state for more detailed information on any requirements of the S-corp election.
Step 1. Form Your LLC or Corporation
If you do not already have a legal business entity, you will need to choose an available business name for your LLC or corporation and register with your state’s business formation agency (typically the secretary of state). This will likely require a registered agent and may require drafting articles of organization, incorporation or additional bylaws as well as providing a list of officers or members. You can check out our state-specific guides to LLC formation, including our list of the best LLC services for those who don’t want to do it themselves.
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Step 2. Get a Federal Tax ID Number
Before you can elect S-corp status, you’ll need a Federal Employer ID Number, also known as a FEIN, EIN or Tax ID. Once your business has been officially formed, you can get a FEIN at no cost on the IRS website.
Step 3. Ensure Your Existing LLC or Corporation Meets the Requirements
In order to elect S-corp status, your LLC or corporation must:
- Not issue or have issued more than one type of stock
- Not have more than 100 shareholders, which:
- May be individuals, certain trusts and estates
- May not be “nonresident aliens,” corporations or partnerships
In addition, your business cannot be an “ineligible corporation,” defined as certain financial institutions, insurance companies and domestic international sales corporations.
Step 4. File S-Corp Election Paperwork
If you meet IRS requirements, you can elect S-corp status by filing Form 2553, Election by a Small Business Corporation.
If you file paperwork and complete the process within two months and 15 days after the beginning of the current tax year, you may be able to claim S-corp status for the current tax year. If your election falls after this, it will be valid for the following year.
Step 5. Maintain the Requirements
You don’t need to renew your S-corp election each year, but you do need to make sure your business continues to meet the requirements for shareholders and stock. If it doesn’t, you’ll need to return to a C-corp status or traditional LLC taxation structure.