S Corp status back to January 2024? No problem! The late S corp election can easily be done well into 2025 for 2024 as well (but there are things to work through)! How does this fit into S Corp vs LLC discussion? The S Corp election takes your LLC (or PLLC or C Corp or PC) and changes the way it is taxed to reduce self-employment taxes. The underlying entity remains intact. Only the way it is taxed changes.

Every year for nearly two decades, Mildrid Esua CPA, PLLC has successfully prepared and filed around 150 Form 2553 S Corp elections with a 100% success rate. Zero calories. No trans fats. Sprinkle in some tax savings, and it’s pure deliciousness! Okay, maybe we got carried away, but you get the idea.

Do you remember the old Van Halen song, Hot for Teacher? “I don’t feel tardy.” We don’t want you to feel tardy about your election to be taxed as an S corporation.

So if you are past the 75 days from January 1 or business inception, no worries—in true IRS fashion there is one rule (don’t be tardy), and fifty exceptions (my dog ate it). Form 2553 is no different, but filing it late has to be done correctly, and we can help!

S Corp Benefits Summarized

Here are the quick benefits of an S Corp election:

Primary benefit is the reduction of Social Security and Medicare taxes (self-employment taxes).

You might need to process payroll (pay wages) to not be wage-limited on your Section 199A qualified business income (QBI) deduction. An LLC or a partnership cannot pay wages to its owner(s).

The state and local tax (SALT) workaround only works with pass-through entities (PTEs). Your LLC cannot take advantage of the SALT work-around / PTET deduction without an S Corp election.

Lower audit risk: Business activities reported on a Schedule C of your Form 1040 tax return tend to attract audits or IRS challenges for auto expense, meals, and travel. Your audit rate risk with an S corporation tax return is 0.4%.

Certain taxing jurisdictions, such as California, have an egregious tax system that penalizes LLCs with additional taxes. An S Corp election might avoid this or significantly reduce this (in California, a garden-variety LLC is a dirty word).

Do you want a more obscure S Corp benefit? Of course you do!

Do you want a more obscure S Corp benefit? Of course you do!

A Qualified Subchapter S Subsidiary, also known as a QSub or QSSS, is simply an S corporation that’s owned by another S corporation. A QSub is treated as a subsidiary of the parent S corporation. Why do you care? At times, you want to merge two businesses, but the assets are immovable (think of a Medicare certification or a specialized defense contract). You might need to S elect one before the combination because of certain rules with the merger.

You might also want to combine gross receipts for the passive investment income test, or combine basis between stock and loan basis, or combine to release accumulated earnings and profit (AE&P).

Are you regretting asking? It’s OK, we’ll move along

S Corp Election Checklist

So we showed you all the benefits, fees and such… but we need to put the horse back in front of the carriage. Let’s go through a quick checklist to ensure we aren’t going down the wrong road. As Doc Brown in Back to the Future says, “Roads? Where we’re going, we don’t need roads.” Well, in S Corp land, we do:

Does your business earn over $48,000 net income (profit) after expenses? Say yes.

Are you located in New York City or Tennessee, where S corporation tax rates are egregious and suck up all the federal tax savings? New Hampshire? Portland, Oregon? Say no. Although there might be exceptions where an S Corp makes sense, NYC, TN, and NH in order to maximize Section 199A deduction benefits.

Do you have other W-2 income that exceeds or comes close to exceeding the Social Security limits of $168,600 (2025)? Say No. If you say yes, we need net business income to exceed $200,000 in #1 above so that the Medicare savings exceeds the “lost” Social Security tax paid by the S Corp (huh? We can explain).

Is this a going concern? In other words, is the business going to continue to earn the same income or more each year? Say Yes.

Do you have an LLC or some other entity in place that can be elected to be taxed as an S Corp? Say Yes. If you say No, we have options, just not elegant ones such as Shelf Corporations.

Do you have other partners besides a spouse… business partners, that is? Say No. If you say yes, are you currently splitting income based on ownership percentages or some formula? If you say Formula, then we’ll need to explore a multi-entity arrangement.

Does your entity own any appreciating assets, such as real estate? Say No. We don’t put appreciating assets into an S corporation. Holding companies own real estate and operating companies elect S Corp status. Chinese Wall.