This article covers changing an LLC's tax status from a disregarded entity to an S-Corporation (S-Corp). Having your LLC taxed as an S-Corp has some tax advantages, especially when you bring on your first employees.
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.
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. S-Corp members must be individuals and 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.
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.
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. Beyond the tax treatment, you might also want to consider a change for these reasons:
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. Reach out to get affordable advice through a LegalShield Business Plan.
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.
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.
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.
Communications Director at LegalShield overseeing content creation designed to make legal protection simple and approachable. He focuses on offering straightforward, trustworthy guidance that empowers people to make informed decisions about their legal rights and responsibilities.
An indemnity agreement settles the “who is responsible” question ahead of time. One party promises, in writing, to cover certain losses tied to the work, so the other isn't left with the bill. These promises appear in construction contracts, leases, and business sales.
A certificate of good standing is official proof from your state that your business is registered and current on its requirements. Most lenders and agencies want a recent one, so it helps to know how to get it before someone asks.
Whether the goal is selling a company, bringing in a business partner, or passing it to a family member, the LLC ownership transfer often involves reviewing the LLC's operating agreement and the applicable state's rules.
If you want to do business under a name that isn't your own legal name or your LLC's registered name, you need a trade name, also known as a doing business as (DBA) name.
A consulting agreement is a contract between a service provider, such as an independent contractor, and a recipient.
Hold harmless agreements can help reduce a business's liability by having signatories accept a certain amount of risk.
Getting an LLC in New York generally involves choosing a business name, filing Articles of Organization with the New York Department of State, creating a written Operating Agreement, completing New York’s publication requirement, and handling tax and business setup steps, like getting an EIN.
