The S corp election is the filing that turns an eligible corporation or LLC into an S corporation for federal tax purposes. It is made on Form 2553 under IRC Section 1362(a), signed by every shareholder, and once accepted it stays in effect until it is revoked or terminated. Nothing changes about the business legally: the same LLC or corporation continues to exist under state law. What changes is the tax treatment. The company becomes a pass-through that files Form 1120-S, the owners who work in the business go on payroll for a reasonable salary, and profit above that salary passes through to shareholders free of self-employment tax. For a profitable owner-operator, that last sentence is usually the entire reason the election exists.
Who is eligible to elect
Eligibility rules come from IRC Section 1361 and they are strict. The entity must be a domestic corporation or an LLC electing corporate treatment. It can have no more than 100 shareholders, and family members can be counted together toward that limit. Shareholders must generally be U.S. individuals, estates, or certain kinds of trusts; partnerships, corporations, and nonresident aliens cannot own S corporation stock. The company can have only one class of stock, meaning every share carries identical rights to distributions and liquidation proceeds, though differences in voting rights are allowed. An LLC electing S status needs to make sure its operating agreement does not create what the IRS would read as a second class of stock, such as non-pro-rata distribution rights. Certain businesses, such as some financial institutions and insurance companies, are ineligible entirely.
An LLC does not need to file Form 8832 first: a properly completed Form 2553 is treated as also making the underlying election to be taxed as a corporation.
The deadline: two months and 15 days
Timing is where most elections go wrong. To take effect for a given tax year, Form 2553 must be filed either during the preceding tax year, or no later than two months and 15 days after the start of the year the election is to take effect. For an existing calendar-year business, that means a 2027 election can be filed any time in 2026, or by March 15, 2027. For a brand new entity, the clock starts when its first tax year begins, which is generally the earliest of when it acquired assets, got shareholders, or began doing business, so a company formed on June 1 has until August 15 of the same year to elect S status effective from day one.
File after the window closes and the election takes effect the following year instead, which for a profitable business can mean a full year of unnecessary self-employment tax. That is the default outcome, but it is not the end of the story.
Missed the deadline: late election relief
The IRS runs a standing administrative program for late S elections under Rev. Proc. 2013-30, and it forgives far more than most owners expect. An entity can file Form 2553 up to three years and 75 days after the intended effective date and still have the election treated as timely if four things are true: the entity intended to be an S corporation as of that date, it missed the deadline for reasonable cause (the form asks for a short explanation, and honest answers like relying on an accountant or not knowing the deadline routinely qualify), all shareholders consent, and everyone has reported their income consistently with an S election being in effect. The late election is filed with a statement citing Rev. Proc. 2013-30 across the top, either on its own or attached to the first Form 1120-S. No private letter ruling and no user fee is required. Businesses that have been filing and paying as a sole proprietorship, however, will not meet the consistent-reporting condition for past years and generally elect prospectively instead.
What changes after the election
Approval arrives as a CP261 notice, and the practical obligations start immediately. The company must run real payroll for working shareholders and pay a reasonable salary before taking profit distributions, file quarterly employment tax returns, and file Form 1120-S with a Schedule K-1 for each owner every year. Distributions must track ownership percentages exactly, because disproportionate distributions can threaten the one-class-of-stock requirement. A former C corporation that elects also inherits the built-in gains tax on appreciation that existed at conversion. The election makes sense when profit comfortably exceeds a reasonable salary for the work performed; below that line, the payroll and filing overhead can cost more than the payroll tax it saves.