When is the deadline to file Form 2553?

For a current-year S-corp election, Form 2553 must be filed by March 15 (for calendar-year taxpayers). If you miss that deadline, the election takes effect January 1 of the following year. You can file a late election with reasonable cause, but get a CPA involved before doing so.

Do I need a lawyer to elect S-corp status?

No. Form 2553 is a one-page IRS form with no filing fee. Most business owners file it themselves or with their CPA. No attorney required.

How do I determine my S-corp salary?

The IRS requires a 'reasonable salary' — what you'd pay someone to do your job in the open market. For solo service providers, 40–60% of net profit is a common starting point. Use the Reasonable Compensation Estimator to get a defensible range for your specific role and industry.

What payroll software should I use for a one-person S-corp?

Gusto is the most popular choice for solo S-corps. It handles federal and state payroll tax deposits automatically, files quarterly 941s, and generates your W-2 at year-end. Expect to pay about $46–80/month.

S-corp setup guide

How to Set Up an S-Corp: The 60-Day Transition Guide

You’ve confirmed the S-corp math works. Now here’s exactly what to do, in what order, and by when — Form 2553 timing, salary setup, payroll service selection, and quarterly tax rhythm.

Personalize your timeline

Answer three quick questions and we’ll calculate your savings estimate and Form 2553 deadline.

What’s your current setup?

I'm currently a sole proprietorI have an LLC (single-member)I already have an S-corp election pending

Estimated net profit this year

Today’s month

Auto-detected: May. Your deadline calculation is based on this.

Estimated SE tax savings

$11,475/yr

On the distribution portion ($75,000) at 15.3%

Typical S-corp costs

~$2,600/yr

Payroll ($600) + CA LLC fee ($800) + extra CPA cost ($1,200)

At $150,000, you’d save roughly $8,875/year after S-corp costs.

Form 2553 deadline:The window for this tax year has passed. File now to take effect January 1 next year. (You can still file a late election with reasonable cause — ask your CPA.)

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Entity & EIN

Week 1

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Confirm your LLC is formed (or form one now)Your state's Secretary of State website handles this — typically $50–150, same-day online in most states. An LLC is the legal wrapper the S-corp election attaches to.

Get an EIN from IRS.govFree, takes 5 minutes online at IRS.gov/EIN. You need this before you can set up payroll. If you already have one from your LLC, use that — no new EIN needed.

Decide on election timingThe current-year window has passed. Filing now locks in January 1 as your election date for next year.

File Form 2553

Week 1–2

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Download Form 2553 from IRS.govIt's a one-page form plus instructions. Search 'Form 2553' at IRS.gov. No attorney required, no filing fee.

Fill in the required fieldsLLC name and EIN, tax year end (December 31 for calendar-year), the effective date of the election, and your shareholder signature with date.

Mail or fax to the IRS service center for your stateUse certified mail and keep a copy. The IRS instructions list the correct address or fax number by state. Fax has a faster paper trail for confirmation purposes.

Allow 60 days for IRS acknowledgmentThe IRS doesn't send a fast confirmation. You can call the IRS Business & Specialty Tax line (800-829-4933) after 60 days to verify receipt. Keep your certified mail receipt as proof in the meantime.

Note:No lawyer needed for Form 2553. No filing fee. This is the form that changes everything — getting it in on time is the only critical step.

Set Your Salary

Week 2

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Use the Reasonable Compensation Estimator to get your defensible salary rangeRun your role and industry through the Reasonable Compensation Estimator to get a market-rate range backed by BLS wage data.

Set a salary that meets the three criteriaCommercially reasonable for your role, high enough to cover your quarterly payroll tax deposits, and not so high it wipes out the SE tax savings.

Use the 40–60% rule as a starting pointFor solo service pros, salary = 40–60% of net profit is a common IRS-defensible range. At $150,000, that's $60,000–$90,000.

Write down your chosen salary before starting payroll setupYou'll enter it in the payroll system in Phase 4. Having it decided in advance avoids choosing a number under pressure.

Note:The IRS's issue isn't that your salary is too high — it's when it's unreasonably low. Stay in the reasonable range and document why you chose it.

Set Up Payroll

Week 3

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Choose a payroll serviceSee the comparison table below. Most solo S-corps use Gusto — it handles federal and state deposits automatically and files your quarterly 941s.

Register your business with your state's employment departmentIn California this is the EDD (Employment Development Department). The online registration usually takes 1–5 business days and is required before you can run payroll.

Add yourself as an employee in the payroll systemEnter your chosen W-2 salary from Phase 3. You're both the employer and the employee here — that's normal for an S-corp owner.

Set payroll frequencyMonthly or semi-monthly is standard for a one-person S-corp. The payroll software will calculate and deposit the right federal and state tax amounts each cycle.

Run your first payrollThe software handles federal and state tax withholding and deposits automatically. Your first paycheck will look smaller than expected — that's correct.

Payroll service comparison

Service	Monthly cost	Best for	Pros	Watch out for
Gusto	~$46–80/mo	Solo S-corps	Clean UI, auto tax deposits, free W-2s	Price increases with add-ons
ADP Run	~$59+/mo	Established businesses	Full compliance support	Higher cost, upsell-heavy
Patriot Payroll	~$17–37/mo	Budget-conscious	Cheapest option	More manual setup, basic UI
Rippling	~$35+/mo	Planning to hire	Best if you'll add employees	Overkill for truly solo

Note:Most solo S-corps use Gusto. It handles federal and state deposits automatically and files your 941s quarterly. For a one-person payroll, expect to pay about $46–80/month.

Bank Account & Bookkeeping

Week 3–4

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Open a dedicated business checking account if you don't have oneMercury, Relay, and Chase Business are popular options. All client payments go here — not your personal account.

Keep W-2 wages and owner distributions in separate line itemsThese are two different transactions with two different tax treatments. Mixing them creates problems at year-end.

Update your bookkeeping software account categoriesWages go to "Officer Compensation." Distributions go to "Shareholder Distributions." These are distinct line items on the 1120-S — your bookkeeper or accountant needs to know the difference.

Make sure all client payments route to the business accountUpdate Venmo, Zelle, invoicing software, or any other payment method. Everything the business earns should flow through the business account.

Quarterly Tax Rhythm

Week 4–6

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Recalculate your quarterly estimatesYour W-2 withholding now covers some of your federal tax obligation. Your 1040-ES payments will likely decrease compared to your sole prop days — recalculate so you don't overpay.

Use the Quarterly Estimate Planner to set your 2026 payment amountsThe Quarterly Estimate Planner factors in your W-2 withholding, S-corp pass-through income, and prior-year safe harbor to give you the right payment amounts.

Set a reminder for payroll tax deposit deadlinesIf your total payroll taxes are under $50,000/quarter, you're a monthly depositor — deposit by the 15th of the month following each payroll. Your payroll software tracks this.

Mark your calendar: 941 due datesForm 941 is due quarterly: April 30, July 31, October 31, and January 31. Your payroll software files these for you if you're using Gusto or ADP — confirm this is turned on.

Watch out:The trust fund penalty is personal liability — not corporate. If payroll taxes aren't deposited on time, the IRS can come after you personally for 100% of the unpaid amount. Your payroll software handles this automatically if you let it run.

Want someone to handle this with you?

The setup takes about 3–4 hours of your time spread over 4–6 weeks. Most of that is the first time. Once it’s running, payroll takes 15 minutes a month.

Talk with Matt