What it does
An S-corp election splits owner compensation into salary (payroll-taxed) and distributions (not self-employment-taxed). Past roughly $40–50K of profit, that split usually beats default LLC taxation.
The strange deadline
2 months and 15 days into the effective year — mid-March for calendar-year businesses, or 75 days from formation for new entities. Missed it? Late-election relief (Rev. Proc. 2013-30) rescues most cases with reasonable cause, back to 3 years and 75 days.
The obligations that come with it
- Reasonable W-2 salary before distributions
- Payroll filings all year
- A separate 1120-S return every March
- No non-resident alien shareholders — a hard eligibility wall
Go deeper
Related reading
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