S corporation election
S corporation election checklist
An S corporation election changes how the owner is paid, how the books are kept and which return the business files. The election is only the first step; the client also needs payroll, reasonable compensation, shareholder basis and a state filing that may not follow the federal rule. This checklist covers what to collect before the election and what the first year of S corporation compliance requires.
Who sends itSent by the tax preparer to an LLC or corporation owner who is considering an S corporation election, or who has filed one and needs to start payroll.
0 of 24 ticked
01Eligibility
02The election
03Owner payroll
04Books and shareholder records
05Ongoing compliance
What firms get wrong
- Electing S corporation status before checking that every shareholder is eligible.
- Taking distributions without a reasonable salary, which can trigger payroll tax exposure.
- Missing the state S election or state annual report because the federal election was filed.
- Failing to track shareholder basis, which makes a later distribution or sale difficult to report.
- Starting payroll before the election is accepted, which can create a mismatch between the W-2 and the 1120-S.
Get this checklist when it changes
We'll email you when this checklist changes, and about once a month with new checklists and templates. Unsubscribe any time. Privacy
Questions about this checklist
When is the S corporation election due?
Form 2553 is generally due by the 15th day of the third month of the tax year the election should take effect. A new business formed later in the year may have a different deadline, so check the instructions for the first tax year.
Can a late S corporation election be fixed?
The IRS may accept a late election if the business has reasonable cause and files the required form and statement. The relief is not automatic, so the firm should review the facts before relying on it.
Does an S corporation owner have to take a salary?
An owner who works in the business generally must take reasonable compensation before taking distributions. The amount depends on the owner's role and the market rate, and the firm should document the basis for it.
Does the state follow the federal S election?
Not always. Some states accept the federal election, some require a separate state election and some tax the entity differently. Check each state where the business files.
What happens if distributions exceed the owner's basis?
A distribution above the shareholder's basis is generally taxable as a capital gain. The firm needs the basis calculation and the distribution records before the K-1 is prepared.
Sources
Checked November 3, 2026. Tax rules, forms and thresholds change; confirm them with the IRS or your tax software before relying on them.
Ready to stop chasing?
Start free trialChecklist from usual.so · https://usual.so/checklists/s-corp-election-checklist/