S-Corp Filing in the USA — Start Your S-Corp Application Online

To qualify for S-Corp tax treatment, a corporation must meet all of the following IRS requirements: (1) It must be a domestic corporation — formed in the United States. (2) It can have a maximum of 100 shareholders. Certain family members can be counted as a single shareholder. (3) All shareholders must be U.S. citizens or permanent residents (green card holders). Nonresident aliens, foreign nationals, other corporations, and most partnerships cannot be S-Corp shareholders. (4) The S-Corp can only have one class of stock — meaning all shares must have identical distribution and liquidation rights (though differences in voting rights are permitted). (5) The corporation cannot be an ineligible entity such as certain financial institutions, insurance companies, or domestic international sales corporations. Because of the U.S. citizenship requirement for shareholders, S-Corps are not suitable for businesses with foreign co-founders or international investors. In those cases, a C-Corp or LLC is the appropriate structure.

The self-employment tax savings of an S-Corp come from splitting compensation into two parts: a W-2 salary and profit distributions. Here is how it works in practice: If you own an LLC taxed as a sole proprietor and earn $150,000 in net profit, you pay self-employment tax (15.3% on the first $168,600 of net earnings as of 2024, covering Social Security and Medicare) on the full $150,000 — approximately $22,950 in self-employment tax. With an S-Corp, you pay yourself a "reasonable salary" — say $70,000 — and take the remaining $80,000 as a profit distribution. You pay payroll taxes (employer + employee side = 15.3%) only on the $70,000 salary, which totals approximately $10,710. The $80,000 distribution is not subject to self-employment or payroll taxes, saving approximately $12,240 in this example. The IRS requires the salary to be "reasonable" — comparable to what you would pay a third party to perform the same work. Artificially low salaries to maximize distributions are a red flag for IRS audits. Most tax advisors recommend evaluating the S-Corp election when net profit consistently exceeds $40,000–$50,000 annually, as the payroll administration costs need to be weighed against the tax savings.

To elect S-Corp tax treatment, you must file IRS Form 2553 (Election by a Small Business Corporation) signed by all shareholders. The timing is critical: to have the S-Corp election effective from the beginning of a tax year, Form 2553 must be filed no later than the 15th day of the 3rd month of that tax year (for a calendar-year corporation, that is March 15). For a newly formed corporation, you have 75 days from the date of incorporation to file Form 2553 and have it effective from the date of formation. If you miss the deadline, you can apply for late election relief under IRS Revenue Procedure 2013-30, which is typically granted if you had reasonable cause for the late filing. We provide Form 2553 guidance with every S-Corp formation order. Note that some states also require a separate state S-Corp election — we advise you on state-specific requirements for your chosen state.

The IRS requires S-Corp shareholders who perform services for the corporation to receive a "reasonable salary" — meaning compensation that is comparable to what you would have to pay an unrelated employee to perform the same duties. There is no fixed dollar amount or percentage rule. The IRS considers factors including: the nature of the work performed and time devoted; the training, experience, and skills of the employee; the corporation's size, revenue, and profitability; compensation paid to similar employees in the industry and geographic area; and whether the distributions are disproportionate to work performed. Courts have ruled on numerous cases where S-Corp owners paid themselves $0 or very low salaries while taking large distributions — the IRS has reclassified those distributions as wages and assessed back payroll taxes plus penalties. A commonly used rule of thumb is to pay yourself 40–60% of net profit as a salary, but this varies by industry and should be determined in consultation with a CPA who specializes in S-Corp taxation. Proper payroll administration (running payroll, filing quarterly Form 941s, issuing W-2s) is required when you pay yourself a salary.

An LLC can also elect to be taxed as an S-Corp by filing Form 2553 with the IRS, while remaining an LLC under state law. This is a common strategy. The tax treatment is identical — both pass income through to owners and allow the salary/distribution split. The differences are structural and legal: A true S-Corp (corporation + S election) is governed by corporate formalities — bylaws, board of directors, annual meetings, stock issuance. An LLC taxed as an S-Corp is governed by an Operating Agreement, members, and managers — which is generally simpler. An S-Corp has stock certificates and a stock ledger; an LLC has membership interests. From an investor perspective, corporations (even with S elections) are more familiar and can be easily converted to C-Corp status by revoking the S election if you decide to raise venture capital. LLCs taxed as S-Corps are popular for established small businesses, professional service firms, and owners who want the tax benefits without the formality of a corporation. The right choice depends on your business model, growth plans, and how much corporate formality you want to maintain.

Yes, it is relatively straightforward to revoke an S-Corp election and revert to C-Corp taxation status. You simply file a statement of revocation with the IRS signed by shareholders holding more than 50% of outstanding shares. The revocation can be made effective immediately, at the start of the next tax year, or on a specific future date. Once revoked, the corporation is taxed as a C-Corp going forward. However, there are some tax implications to consider: if the S-Corp had accumulated Accumulated Adjustments Account (AAA) or had built-in gains from appreciated assets at the time of conversion, specific IRS rules apply for a transition period. Additionally, if you are converting to raise VC funding, the investors will want a clean Delaware C-Corp capitalization table, so the conversion should be done carefully with legal and tax counsel. We recommend planning the conversion well before starting investor conversations to allow time for proper restructuring of the cap table and any required state filings.

After your S-Corp is approved by the state, we deliver a complete digital formation package to your email. This includes: the Certificate of Incorporation from the state (official proof that your corporation is formed and in good standing); the company's Bylaws template (the governing rules for how the corporation operates, including board and shareholder meeting procedures); Initial Board Resolutions template (approving the S-Corp election, authorizing bank accounts, appointing officers); Stock Certificate templates (for issuing shares to the founders); a Digital Corporate Seal; and guidance and a completed draft of IRS Form 2553 for your S-Corp tax election. We also include your registered agent's contact information and first-year registered agent service. These documents give you everything you need to open a U.S. business bank account, run payroll, and begin operations as an S-Corp.