How to Switch from an LLC to an S-Corp

Index

1. Why Business Owners Switch from LLC to S-Corp
   
   
2. Example 1: Instructor-Owned Studio with $100K Profit
   
   
3. Example 2: Two-Person Fitness Partnership Earning $180K
   
   
4. How to Switch to an S-Corp (Step-by-Step)
   
   
5. Form 2553: How to Fill It Out
   
   
6. Deadline to Elect S-Corp Status
   
   
7. Requirements to Maintain S-Corp Status
   
   
8. Final Thoughts + Free Consultation
   
   

1. Why Business Owners Switch from LLC to S-Corp

Most LLCs are taxed as sole proprietorships or partnerships. That means the owner pays 15.3% self-employment tax on the full profit, on top of income taxes.

When an LLC elects to be taxed as an S-Corp:

• The owner must pay themselves a reasonable salary (subject to payroll tax),
  
  
• Remaining profits are paid out as distributions, which are not subject to self-employment tax.
  
  

That difference can mean thousands in annual tax savings, especially for profitable fitness studios.

2. Example 1: Instructor-Owned Studio with $100K Profit

Before S-Corp election (as an LLC):

• Net income: $100,000
  
  
• Self-employment tax (15.3%): $15,300
  
  

After S-Corp election:

• Salary: $55,000 → Payroll taxes (15.3%): $8,415
  
  
• Distributions: $45,000 → No payroll tax
  
  
• Annual savings: $6,885
  
  

Even after hiring a payroll provider, the owner sees a significant tax benefit.

3. Example 2: Two-Person Fitness Partnership Earning $180K

As an LLC partnership:

• Net income per partner: $90,000
  
  
• Self-employment tax per partner: $13,770
  
  
• Combined tax: $27,540
  
  

As an S-Corp:

• Salary per partner: $55,000 → Payroll tax per partner: $8,415
  
  
• Distributions per partner: $35,000
  
  
• Combined payroll tax: $16,830
  
  
• Annual savings: $10,710

4. How to Switch to an S-Corp (Step-by-Step)

Here’s how to legally change your tax status to an S-Corp while keeping your LLC intact:

Step 1: Confirm Eligibility

• Must be a U.S. entity
  
  
• Must have 100 or fewer owners
  
  
• Only one class of ownership
  
  
• Owners must be U.S. citizens or residents
  
  
• Must use a calendar year (unless IRS approves otherwise)
  
  

Step 2: Complete IRS Form 2553

This is the official election form used to switch your tax classification.

Download here:
https://www.irs.gov/forms-pubs/about-form-2553

5. Form 2553: How to Fill It Out

Key sections to complete:

• Line A: Enter the effective date of the S-Corp election (usually January 1 of the current tax year)
  
  
• Line E–H: Business name, EIN, address, and contact details
  
  
• Line I: Check the box for “LLC”
  
  
• Part II: Fill this out if filing late (explain your reasonable cause)
  
  
• Part III: List and get consent from all shareholders/members
  
  

Send via mail or fax to the IRS office for your state. Keep a copy on file.

6. Deadline to Elect S-Corp Status

To elect S-Corp status for the current year, you must file Form 2553 by March 15.

If you miss this deadline:

• You may still qualify for late election relief
  
  
• Must provide a valid explanation on Part II of Form 2553
  
  

7. Requirements to Maintain S-Corp Status

S-Corp election comes with ongoing compliance rules. To keep your status, you must:

• Pay yourself a reasonable salary (based on industry standards for your role)
  
  
• Run proper payroll with W-2s, tax withholdings, and quarterly filings
  
  
• File Form 1120-S annually
  
  
• Distribute Schedule K-1s to all owners
  
  
• Keep separate, accurate business records
  
  
• Break down payroll by role (Ledge Accounting helps clients separate instructor pay, admin pay, and sales team compensation)
  
  

Ledge also performs manual reconciliation of client income from platforms like:

• Mindbody
  
  
• ClubReady
  
  
• Mariana Tek
  
  

We ensure your monthly financials are clear, accurate, and delivered by the 7th.

8. Final Thoughts + Free Consultation

Switching from an LLC to an S-Corp can create real tax savings, but it must be done correctly and maintained carefully.

At Ledge Accounting, we help fitness business owners:

• Decide whether an S-Corp is the right fit
  
  
• Set up compliant payroll systems
  
  
• Track salaries and distributions accurately
  
  
• Deliver monthly financial reports that help you grow
  
  

Ready to find out if an S-Corp makes sense for your business?

Book your free consultation with Ledge Accounting today.
We’ll review your current setup and help you make the best tax decision for your studio.