S-Corp Election: The Complete Guide for LLC Owners

Index

1. Why LLC Owners Elect S-Corp Status
   
   
2. Two Real-World Examples of S-Corp Tax Savings
   
   
3. How to Switch from LLC to S-Corp
   
   
4. How to Fill Out IRS Form 2553
   
   
5. Deadline to Elect S-Corp Status
   
   
6. Requirements to Maintain S-Corp Status
   
   
7. Final Thoughts + Free Consultation
   
   

1. Why LLC Owners Elect S-Corp Status

As an LLC owner, your entire net income is typically subject to 15.3% self-employment tax. That adds up quickly.

When you elect to be taxed as an S-Corp, you can split your income into:

• A reasonable salary (subject to payroll tax), and
  
  
• Distributions (not subject to self-employment tax)
  
  

This structure can result in major tax savings once your income exceeds the amount you'd pay yourself as a fair salary.

2. Two Real-World Examples of S-Corp Tax Savings

Example 1: Single-Member Yoga Studio Owner

• Net income: $120,000
  
  
• Tax as LLC: $18,360 in self-employment tax
  
  

With S-Corp election:

• Reasonable salary: $60,000 → Payroll tax: $9,180
  
  
• Distributions: $60,000 → No payroll tax
  
  
• Estimated annual savings: $9,180
  
  

Example 2: Gym Owner Duo (Two-Member LLC)

• Net income: $200,000 ($100,000 per owner)
  
  
• Tax as LLC: $30,600 in self-employment tax
  
  

With S-Corp election:

• Salary: $60,000 per owner → Total payroll tax: $18,360
  
  
• Distributions: $40,000 per owner
  
  
• Estimated annual savings: $12,240
  
  

Even after payroll service costs, both owners keep more of their income.

3. How to Switch from LLC to S-Corp

You don’t need to dissolve your LLC or change your legal name. You simply file IRS Form 2553 to elect S-Corp tax treatment.

Eligibility requirements:

• Must be a U.S. LLC
  
  
• 100 or fewer shareholders (owners)
  
  
• Shareholders must be U.S. citizens or residents
  
  
• Only one class of stock allowed
  
  
• Must use a calendar tax year (unless you request IRS permission)
  
  

4. How to Fill Out IRS Form 2553

Download the form here:

Instructions to complete Form 2553:

• Line A: Enter desired effective date (usually Jan 1 of the current year)
  
  
• Lines E–H: Business name, EIN, and address
  
  
• Line I: Indicate “LLC” as the current entity
  
  
• Part II: If you're late, explain the reason for late election
  
  
• Part III: All owners must sign and consent to the election
  
  

Submit by mail or fax to the IRS address listed for your state in the form instructions. Always keep a copy for your records.

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5. Deadline to Elect S-Corp Status

To apply for the current year:

• File Form 2553 by March 15
  
  

If you missed the deadline, you may still qualify for late election relief by completing Part II of the form and explaining the delay.

6. Requirements to Maintain S-Corp Status

Once you become an S-Corp, there are rules you must follow:

Pay a Reasonable Salary

You must pay yourself a fair wage before taking distributions. Underpaying may trigger IRS penalties.

Run Payroll

You’ll need to file W-2s, withhold taxes, and make quarterly payroll deposits (Form 941).

File Corporate Return

S-Corps must file Form 1120-S annually and issue Schedule K-1s to each owner.

Maintain Accurate Books

You must keep business records separate from personal ones. This includes monthly reconciliation of all income, especially from payment processors like:

• Mindbody
  
  
• ClubReady
  
  
• Mariana Tek 

At Ledge Accounting, we manually reconcile every dollar to ensure your financial reports are accurate, clean, and delivered by the 7th of each month.

Break Down Payroll by Role

We separate instructor pay, admin salaries, and sales commissions, giving you visibility into what every department is costing you.

7. Final Thoughts + Free Consultation

Electing S-Corp status can be a powerful way to reduce taxes, but it only works if you follow the rules, pay yourself properly, and keep clean books.

At Ledge Accounting, we help fitness business owners:

• Evaluate if S-Corp status is the right move
  
  
• Set up compliant payroll systems
  
  
• Reconcile monthly income manually
  
  
• Break down wages by department
  
  
• Deliver clear, actionable monthly financials by the 7th of each month
  
  

Ready to reduce your tax burden and gain full control of your monthly financials?

Book your free consultation with Ledge Accounting today. We’ll review your current bookkeeping setup, discuss your challenges, and create an action plan to help your fitness business thrive.