How to Change LLC to S-Corporation

Editor's note: This post was originally published September 20, 2021 and has been updated for accuracy, comprehensiveness and freshness on June 12, 2026.

By default, single member limited liability companies (LLCs) are taxed as disregarded entities, which means the business doesn’t get taxed: you do as the owner. This can offer flexibility while you’re a sole proprietor, but reporting everything on your personal return can be burdensome as your business grows.

What is one of the primary benefits of designating an LLC as an S-Corp? Taxes. S-Corp members can treat some of the business’s income in a way that isn’t subject to FICA self-employment tax. It’s also a helpful tax designation when you have employees.

Switching an LLC from a disregarded entity to S-Corp tax status is straightforward, but there are many steps, and you should have a lawyer review your existing documents first as there are steps required with the IRS and to your legal documents.

LLC as a disregarded entity vs. LLC as an S-Corp

Both disregarded entities and corporations are types of entity structures that shield owners from business liabilities. However, there are notable differences in how each company is owned and managed.

When forming an LLC as a disregarded entity, a business can have as many members as it chooses. In fact, members don’t even need to be individuals, since another entity can have ownership in an LLC. S-Corp members must be individuals. They cannot be corporations or other entities, and they must not be nonresident aliens.  

Although both disregarded entities and S-corps are pass-through tax entities, there are additional benefits for going with an S-Corp. This is because S-Corp owners are only taxed on wages paid by the company, not on dividends they earn. 

How to elect to have an LLC taxed as an S-Corp

If you are converting your tax classification to an S Corp from something else, you'll need to file IRS Form 2553 before March 15th for the change to go into effect that same year. Newly formed LLCs must elect S-Corp classification within 2 months and 15 days from your formation date.  This is a good time to seek the advice of a LegalShield® provider lawyer or CPA.

After IRS approval, your business remains an LLC under state law but is taxed as an S-Corp at the federal level. If you are the owner of an LLC designated as an S-Corp, you will need to take a reasonable salary and will be subject to payroll taxes. You should get professional advice on what “reasonable” means in your situation.

When you should make the switch to an S-Corp

Switching to S-Corp tax treatment might make sense for your business when it reaches a level of profitability where employment taxes cut sharply into your earnings. As an S-Corp, you may be able to reduce your overall payroll tax obligation.

Beyond the tax treatment,  you might want to consider a change for these other reasons:

• You want to legally reduce self-employment tax exposure
• You are comfortable running payroll and filing corporate tax returns
• Your ownership structure meets IRS S-Corp eligibility requirements
• You plan to reinvest profits or distribute earnings in a tax-efficient way

Potential blocks to S-Corp tax status

Although the process of converting an LLC from a disregarded entity to an S-Corp is fairly straightforward, you must make sure you meet all the requirements before you start. This might mean making changes to your Operating Agreement and ownership. Operating Agreements often contain IRS-required language for each type of tax classification, so it is important that yours contains the appropriate language for an S-Corp. You may also need Member approval to change tax classification, so corporate resolutions might be required. 

If you’re a personally owned business hiring your first employee, these might not be issues you have to worry about, but they’re worth checking, especially if you have investors.

These issues can complicate your election to file as an S-Corp:

• These issues can complicate your election to file as an S-Corp:
• Too many owners: S-Corps are limited to 100 members/shareholders.
• Invalid owners: The IRS limits members and shareholders of S-Corps to individuals who are legal residents of the U.S. There are many specific rules about this, which you can find in the Instructions for Form 2553.
• Invalid Operating Agreement: If your Operating Agreement contains terms about profit distribution that break the “single class of stock” rule, then you may not be able to change your tax status, or you could have it revoked. You should have a lawyer review your Operating Agreement before you file for the S-Corp election.
• Unreasonable payroll: Salaries need to reflect the actual work the owner puts into the business. Assigning unreasonable salaries can result in additional scrutiny. For example, paying a salary to an owner who has no involvement in business operations is not often reasonable.

Choose a LegalShield Membership for business management legal advice 

You should get legal help when setting up a business as early as possible, and if you’re still considering whether to be taxed as a disregarded entity or an S-Corp, it's time to explore a LegalShield Plan. Your subscription gives you insight from lawyers who understand business and tax structures, so you can make your decision with confidence.

Trying to make changes to your tax status or your business entity is complex work, and you can’t afford to make mistakes. Reach out to get affordable advice through a LegalShield Business Plan.

Frequently asked questions

How much does it cost to change from a disregarded entity to an S-Corp?

There is no fee to file Form 2553 for an LLC S-Corp election. However, you should review your business finances and Operating Agreement before you do, which likely involves paying a lawyer and an accountant. Once you’ve changed your status, there are ongoing administrative expenses for payroll and tax reporting.

Can an LLC be an S-Corp?

Yes, an LLC formed under your state's laws can elect to be taxed as an S-Corp at the federal level, but this does not alter its legal status. 

Do I need a new EIN if I change to S-Corp?

You will not need a new EIN if you select an S-Corp designation for tax purposes. This is because your business entity stays the same (an LLC), but the way it is treated by the IRS changes.