Before discussing an S-Corp election, gather the facts about your business and ask for a comparison of the full costs and obligations. Revenue alone does not answer whether an election fits. This checklist helps organize a conversation with a qualified tax professional; it does not tell you which tax treatment to choose.
Start with the business you already have
An LLC is created under state law. Federal tax classification is a separate question. The Internal Revenue Service (IRS), in Publication 3402, explains default LLC classifications and elections. An eligible LLC can elect S corporation treatment without replacing its state-law LLC structure.
- Bring formation documents, an ownership breakdown, and information about where the business operates.
- Identify the current federal tax classification and any prior election or IRS acceptance notice.
- Bring recent business returns or explain that the business is new. Keep sensitive records within your professional’s secure process.
Ask about eligibility and timing
The IRS instructions for Form 2553 explain eligibility, consent, filing requirements, and late-election provisions. Use the instructions for the relevant situation rather than assuming a deadline from a general article.
- Does the entity and its ownership qualify?
- Which effective date is being considered, and what must be filed or consented to?
- Does a prior election or ownership change affect the analysis?
- Who will track the filing, acceptance, and follow-up requirements?
Prepare a realistic compensation discussion
The IRS compensation guidance says S corporations must pay reasonable compensation for services provided by a shareholder-employee before making non-wage distributions to that person. It identifies factors such as duties, training, time, and comparable pay. It also explains that payments can be reclassified as wages.
- Describe the work each owner performs and the time involved.
- Ask how compensation will be supported and documented.
- Ask how payroll, withholding, employer obligations, and distributions will be administered.
- Avoid choosing a salary solely to reach an advertised tax-saving result.
Compare ongoing costs as well as taxes
Request a written comparison that identifies its assumptions. Include professional fees, payroll administration, bookkeeping, insurance or benefits questions, and any state-specific consequences that need review. Ask what happens if profits or cash flow are lower than expected. A projected tax difference is not the same as a net benefit after costs.
Leave with responsibilities and next steps
- Which questions remain unresolved?
- Which records or estimates need improvement?
- Who is responsible for each filing and recurring task?
- When will the assumptions and compensation be reviewed again?
Keep the comparison with its date and assumptions. If the underlying facts change, revisit the analysis instead of treating an old projection as a permanent answer. For the underlying concepts, read the LLC and S-Corp overview.