Can a US non-resident make an S-Corp election?

No, US non-residents (Non-Resident Aliens) CANNOT own an S-Corporation. This is explicitly prohibited by IRC §1361(b)(1)(C) — an S-Corp shareholder must be a US citizen, US resident alien (Green Card or substantial presence), or certain trusts/estates. Non-residents have other paths: C-Corp election or default pass-through with treaty benefits on Form 1040-NR.

Can I revoke an S-Corp election later?

Yes. You file a revocation statement with the consent of shareholders owning >50% of stock. IRS processes in 60–90 days. After revocation, you cannot re-elect S-Corp for 5 years without IRS consent. Common revocation reasons: ownership change (NRA partner joining), business income drops below the break-even threshold, transition to C-Corp for VC funding.

S-Corp election (Form 2553)

S-Corporation election — tax savings

Q: What is an S-Corp election in plain English?

S-Corp election is not a separate company — it's a tax regime the IRS applies to your LLC or Corporation after you file Form 2553. Legally you remain an LLC. Tax-wise, the IRS now lets you split profit into salary (subject to FICA) and distributions (not subject to FICA). The salary-portion mechanism saves the 15.3% self-employment tax on the distribution portion.

Q: At what income level does an S-Corp election pay off?

S-Corp election pays off at ~$80,000/year net income. Below that — additional costs (payroll service $500–1,000/year + Form 1120-S filing $1,500–3,000/year) eat the savings. At $80–150K, savings $3–8K/year. At $150–300K, savings $8–15K/year. At $300K+, savings $15–25K/year plus additional opportunities (solo 401k, deductions). Exact break-even depends on state (state corp tax varies) and industry (reasonable salary varies). A consultation gives a precise estimate for your situation.

Q: When to file Form 2553 for S-Corp election?

Ideally — no later than March 15 of the year for which the election should take effect. For example, to be S-Corp from January 1, 2026, you file Form 2553 between January 1 and March 15, 2026. Missed the window? Late election relief is available via Rev. Proc. 2013-30 — file Form 2553 with "FILED PURSUANT TO REV. PROC. 2013-30" notation, IRS typically accepts within 3 years 75 days of intended effective date. I handle both standard and relief filings.

Q: What is "reasonable salary" in an S-Corp?

Reasonable salary is the market wage for your work in your region. The IRS requires you to pay yourself reasonable salary BEFORE taking distributions. If you set salary too low to maximize distribution savings, IRS audits and reclassifies distributions as wages with penalties + interest. Standard benchmarks: Bureau of Labor Statistics OEWS data, Glassdoor median for your role/region. As a rule of thumb: 40–60% of net business profit, depending on industry.

We elect S-Corporation tax treatment for your LLC via Form 2553. $5–15K/year savings on self-employment tax for US persons with $80K+ income. I run payroll, prepare Form 1120-S.

Book a consultation

What is an S-Corp election and why it works

An S-Corporation is NOT a separate legal entity. It is a "tax regime" the IRS applies to your LLC or Corporation when you file Form 2553. Legally, your LLC stays an LLC — same contracts, EIN, banking, state annual reports. What changes is how the IRS calculates your taxes. The core benefit — self-employment tax (15.3%) savings: In a default LLC: SE tax applies to 92.35% of the $150K profit: 15.3% × $138,525 ≈ $21,194 in Social Security + Medicare, plus federal income tax 22–37%. In an LLC with S-Corp election: you split the profit into "reasonable salary" (e.g., $60K) and "distributions" ($90K). Only the salary is subject to FICA payroll tax (15.3%) = $9,180. Distributions are NOT subject to SE tax. The difference on these two taxes alone is ≈ $21,194 − $9,180 ≈ $12,000/year. After payroll and 1120-S costs and the smaller QBI deduction, the real saving on $150K of profit is about $6,600 a year (see the example below). This is fully legal and standard — an S-Corp shareholder's share of profit is not self-employment income (Rev. Rul. 59-221), while salary is subject to FICA. But there are conditions: 1. Salary must be "reasonable" — comparable to market wage for your work. If you're an IT consultant earning $200K and pay yourself $20K salary — IRS will reclassify and assess penalties. 2. Income must be sufficient (~$80K+) so savings cover additional costs (payroll service, Form 1120-S filing). 3. Owner must be a US person or resident — non-resident aliens (NRA) cannot own S-Corp. 4. No more than 100 shareholders (not an issue for small business). Typical use case: freelancer or consultant with $100–300K net income, US citizen or resident, doing business solo or with one partner. For them, S-Corp election is standard optimization.

Important for US non-residents

S-Corp election is NOT available to US non-residents (NRA). Per IRC §1361(b)(1)(C), an S-Corporation shareholder must be a US citizen or US resident alien. NRA ownership disqualifies the S-Corp election — the IRS will revoke it and assess back taxes plus penalties. If you're a non-resident owning a US LLC, your options for tax optimization are different: C-Corp election (21% corporate tax, can be advantageous in some treaty scenarios), or stay with default pass-through and apply treaty benefits on Form 1040-NR. For mixed ownership (US person + NRA partners) — S-Corp election is impossible. The whole entity must qualify.

When the S-Corp election makes sense

S-Corp election becomes worthwhile at ~$80,000/year net income for US persons. Below that — additional costs (payroll service $500–1,000/year + Form 1120-S filing $1,500–3,000/year) eat the savings. Rule of thumb: • Income < $80K — stay with regular LLC. SE tax ~$11K, compliance costs ~$300. Net S-Corp benefit ≈ 0 or negative. • Income $80–150K — S-Corp election saves $3–8K/year after all costs. Worth considering. • Income $150–300K — savings $8–15K/year. Clearly worthwhile. • Income $300K+ — savings $15–25K/year + extra benefits (solo 401k contributions, health insurance deductions, etc.). Other important factors: • Willingness to run payroll — auto-split of salary from distributions. Bi-weekly or monthly. Via Gusto, OnPay, ADP — cost $40–100/month. • Income stability — S-Corp suits steady income. Seasonal or unpredictable business makes payroll harder. • Sole owner vs partners — S-Corp election is easier for single-member LLC. For multi-member, requires coordinated salaries and profit distribution.

Savings example: freelancer with $150K income

Anna is an IT consultant, US citizen, single, tax year 2026. Net business profit: $150,000. Federal taxes only. Without the S-Corp election (default LLC): • Self-employment tax: 15.3% × 92.35% × $150,000 ≈ $21,194 • Federal income tax ≈ $16,413 (after the $16,100 standard deduction, the deduction for half of SE tax, and the 20% QBI deduction) • Total: ≈ $37,607 With the S-Corp election (reasonable salary $60,000): • FICA on the salary: 15.3% × $60,000 = $9,180 (half paid by the company, half withheld from pay) + FUTA $42 • Payroll service ≈ $800/year, Form 1120-S preparation ≈ $2,000/year • The remaining profit of ≈ $82,568 reaches Anna on her K-1 — no SE tax on it • Federal income tax ≈ $18,987 — higher than with the default LLC: the QBI deduction now applies only to the K-1 profit (salary is not QBI), and there is no deduction for half of SE tax • Total: ≈ $31,009 Anna's savings: ≈ $37,607 − $31,009 ≈ $6,600 a year. What to keep in mind: • The salary must be reasonable — in line with the market for your work and region. If a fair salary for that work is closer to $80,000, the savings drop to about $2,900 a year. If the IRS finds the salary too low, it can recharacterize part of the distributions as wages, with FICA and penalties. • State taxes are separate. California, for example, charges S-Corps a 1.5% franchise tax on net income (minimum $800), which cuts the benefit further. • The lower the profit, the smaller the benefit: at $50–70K, payroll and 1120-S costs often eat the whole saving. That is why we run your own numbers before filing Form 2553.

How an S-Corp election is done

5 steps from benefit analysis to your first Form 1120-S.

Benefit analysis (consultation)

We calculate your savings for the upcoming year including all costs (payroll, bookkeeping, Form 1120-S). If savings are under $3K — I'll advise against (stay with regular LLC and avoid the complexity).

Reasonable salary determination

We use Bureau of Labor Statistics, Glassdoor, ZipRecruiter — establish the median wage for your profession in your region. Salary must be defensible if IRS audits. I document the calculation method for the file.

Form 2553 filing

Filed with IRS no later than March 15 of the year the election should take effect (or retroactively via relief procedure). We complete all 4 pages, get signatures from all shareholders (their spouses too if community-property state), submit via fax + mail with delivery confirmation.

Payroll setup

Register as an employer with IRS + state employment agency. Set up Gusto / OnPay / ADP. Configure bi-weekly or monthly payroll runs. Open employer tax accounts (Federal 941, state withholding, state unemployment).

Annual Form 1120-S

At year-end I prepare Form 1120-S (S-Corporation return) + K-1 for each shareholder. Due date: March 15 of the following year (extension to September 15 available). K-1 flows to your personal 1040.

Calculate your savings

Interactive LLC vs S-Corp calculator — enter your income and salary →

Is S-Corp right for you?

A 10-question quiz will show whether S-Corp election or another structure is right →

Frequently asked questions — S-Corp election

What an S-Corp is, when it's worthwhile, for NRA, Form 2553, reasonable salary, can it be revoked