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S-Corp election: when it pays, and when it doesn't.

Electing S-Corp status can cut the self-employment tax on an LLC's profit. It also adds payroll, a separate return and rules about your salary. We run the numbers first, then set it up properly.

How it saves

Salary pays payroll tax. Distributions don't.

As a single-member LLC

All your profit is subject to roughly 15.3% self-employment tax, up to the Social Security wage base.

As an S-Corp

You pay yourself a reasonable salary through payroll. Profit above that comes out as distributions, without payroll tax.

Illustrative example

$150,000 of profit with a $70,000 salary: about $8,000 a year saved after payroll costs and the Illinois replacement tax. Your numbers will differ.

Reasonable salary

The IRS expects pay in line with what you would pay someone else to do your job. Too low invites trouble.

The costs

What you take on with the election.

  • Running payroll for yourself, with quarterly payroll filings and a W-2
  • Form 1120-S, due March 15 for calendar-year companies
  • Illinois Form IL-1120-ST and the 1.5% personal property replacement tax on S-Corp income
  • Cleaner books: personal and business money kept fully separate
Timing

File Form 2553 on time.

To take effect for a tax year, Form 2553 is due within 2 months and 15 days of the start of that year: March 15 for a calendar-year business. Missed it? Late-election relief is often available. We file the election, set up payroll and plan your salary and estimated taxes for the year.

FAQ

Questions we get every week

At what profit does an S-Corp make sense?
Often once profit is steady well above what a reasonable salary for your role would be. Below that, the payroll and filing costs can eat the savings. We model it with your numbers.
What is a reasonable salary?
Pay comparable to what a business would pay someone else for the same work, based on your role, hours and market.
When is Form 2553 due?
Within 2 months and 15 days of the start of the tax year it should apply to; March 15 for a calendar-year business. Late-election relief may be available.
Does Illinois tax S-Corps?
Illinois charges a 1.5% personal property replacement tax on S-Corp income, filed on Form IL-1120-ST. Owners still pay Illinois income tax on their share.
Can I undo an S-Corp election?
Yes, it can be revoked, but you generally cannot re-elect for five years. Decide with the numbers in front of you.

General information, not advice for your situation. Figures checked October 2026.

Thinking about an S-Corp? See your numbers first.

Call or text (847) 278-7305 or email Tax@taxman365.com.

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