How do I elect S-corp status for my LLC or corporation?
To elect S-corp status, file IRS Form 2553 (Election by a Small Business Corporation) signed by all shareholders. For a new entity, file within 75 days of formation. For an existing entity, file by March 15 to apply to the current tax year. The IRS will send a CP261 approval letter within 60 days.
Key Definitions
- Form 2553
- The IRS Election by a Small Business Corporation form — the document that formally requests S-corporation tax treatment for a domestic LLC or corporation. It must be signed by all shareholders and filed by the applicable deadline. There is no online filing option; it must be mailed or faxed to the IRS Service Center for your state.
- Reasonable Compensation
- The salary S-corp owner-employees must pay themselves before taking distributions. The IRS requires this salary to reflect fair market value for the services performed — roughly what you would pay an arm's-length employee to do the same work. Salary that is unreasonably low relative to distributions is the most common S-corp audit trigger.
5 Steps to Elect S-Corp Status
- 1
Verify S-corp eligibility requirements
Confirm your entity meets all IRS requirements: a domestic LLC or corporation, 100 or fewer shareholders, only one class of stock, all shareholders must be US citizens or permanent residents, and no partnerships or C-corporations as shareholders. Most small business owners in DC, MD, and VA easily qualify.
- 2
Obtain and prepare IRS Form 2553
Download Form 2553 (Election by a Small Business Corporation) from IRS.gov. Complete Part I (entity information, election effective date) and Part II if required. Every current shareholder must sign the consent statement in column K of the shareholder list.
- 3
File Form 2553 by the applicable deadline
Mail or fax Form 2553 to the IRS Service Center listed in the form instructions for your state. Certified mail with return receipt provides proof of timely filing. There is no online filing option for Form 2553. Keep a copy of the signed form and your mailing receipt.
- 4
Wait for the IRS CP261 approval letter
The IRS will mail a CP261 Notice of S Corporation Acceptance letter within 60–90 days. Store this letter permanently in your business records — you will need it to prove S-corp status to state tax authorities, your bank, your CPA, and any future buyers of your business.
- 5
Set up owner payroll immediately
From the effective date of your S-corp election, run W-2 payroll for yourself. Register as an employer with the IRS (if not already done), set up EFTPS for federal tax deposits, and register with your state tax authority. Your CPA or payroll service can help establish a reasonable salary and payroll schedule.
S-Corp Election Deadlines by Scenario
| Feature | Deadline | Notes |
|---|---|---|
| New LLC/Corp (current year) | Within 75 days of formation | Most common — file immediately when you form the entity |
| Existing entity (next year election) | By December 31 of the prior year | Or anytime — effective next January 1 |
| Existing entity (current year election) | By March 15 of the current year | Must have all shareholder signatures |
| Late election (missed deadline) | File Form 2553 with reasonable cause statement | IRS grants relief if you acted like an S-corp all year |
| Virginia state recognition | Automatic upon federal approval | File copy with Virginia Department of Taxation |
| Maryland state recognition | File Form 510 within 60 days of federal election | Maryland requires separate notification |
| DC state recognition | Automatic — DC follows federal S-corp status | No separate DC form required |
S-Corp Eligibility Checklist
All of these must be true before filing Form 2553:
- Domestic entity (incorporated or organized in the United States)
- 100 or fewer shareholders
- Only one class of stock (differences in voting rights are permitted)
- All shareholders are US citizens, permanent residents, or qualifying trusts/estates
- No partnerships, corporations, or non-resident aliens as shareholders
- Not an ineligible corporation (financial institution, DISC, insurance company)
DC, Maryland, and Virginia State Requirements
Washington, DC
- Automatically follows federal S-corp election — no separate DC form required
- DC Franchise Tax applies to S-corps (8.25% on net income)
- S-corp election may exempt you from DC Unincorporated Business Tax (UBT)
Maryland
- File Form 510 with Maryland Comptroller within 60 days of federal approval
- Maryland PTET election available — may offset SALT cap impact
- 8% pass-through entity tax with offsetting credit for shareholders
Virginia
- Automatically recognizes federal S-corp status — no separate VA form
- No Virginia S-corp franchise tax (LLC/S-corp parity)
- Virginia PTET election available for pass-through entities
Want Us to Handle Your S-Corp Election?
Our CPAs file Form 2553, calculate your reasonable salary, set up payroll, and manage ongoing S-corp compliance. We serve small businesses throughout DC, Maryland, and Virginia.
Frequently Asked Questions
Related Guides & Services
Ready to Elect S-Corp and Start Saving?
Our virtual CPAs handle everything: Form 2553 filing, reasonable salary determination, payroll setup, and year-round S-corp compliance. Serving DC, Maryland, and Virginia businesses.