What is an S-Corp election?

An S-Corp election (IRS Form 2553) is a tax classification that allows a corporation or LLC to pass income through to shareholders, avoiding corporate-level double taxation while still maintaining corporate liability protection.

With S-Corp status, the company itself does not pay federal income tax. Instead, profits and losses pass through to shareholders' personal tax returns. The key benefit for profitable businesses: shareholders who actively work in the business can split income between a "reasonable salary" (subject to payroll taxes) and distributions (not subject to self-employment tax), potentially saving thousands in FICA taxes annually. Requirements include: 100 or fewer shareholders, all US residents, only one class of stock, and no corporate or partnership shareholders. File Form 2553 within 75 days of formation or by March 15 for the current tax year.