How to Switch from LLC to S Corp: Step-by-Step Guide for Small Business Owners

Switching your LLC to an S Corporation can offer significant tax savings, but the process often feels complicated. It’s normal to wonder if this change is right for your business and how to do it without unnecessary headaches. 

At CMP, we work with business owners across the Mountain West and nationwide. From guiding entrepreneurs through complex decisions to supporting them with services such as business valuation, bookkeeping and payroll. We help them stay confident and focused on growth every step of the way.

A common question we hear is:

When does it make sense to switch from an LLC to an S Corp?

Generally, businesses with steady profits above $40,000 may benefit from the tax savings an S Corp offers, but every situation is different. This guide will help you understand if and when switching makes sense for you.

We’ll walk you through the difference between legally converting your LLC and electing S Corp status for tax purposes. You’ll get a clear, step-by-step process for making the switch, plus what to expect after. By the end, you’ll have the information you need to decide confidently and manage the change smoothly.

Why Growing LLCs Consider Converting to an S Corp

As your LLC grows and starts making more profit, self-employment taxes can become a bigger expense. Currently, LLC owners who are actively involved in the business pay a 15.3% self-employment tax on their earnings, which can take a significant bite out of their income.

Electing S Corp status can help reduce this tax burden. By paying yourself a reasonable salary and taking the rest of the profit as distributions, you can lower the amount subject to self-employment tax. This strategy can lead to meaningful savings for business owners.

Beyond tax savings, choosing S Corp status offers other benefits. It can add credibility to your business, making it more attractive to investors and lenders. This can be important if you plan to grow your company or bring in outside funding.

LLC vs. S Corp: What’s the Difference?

Choosing between an LLC and an S Corporation comes down to how your business is taxed and the level of administrative work you’re willing to handle. While an LLC offers simplicity and flexible management, electing S Corp status changes your tax responsibilities and can reduce your overall tax burden. Understanding these differences is key to making the right choice for your growing business.

Electing S Corp status can lead to tax savings by reducing self-employment taxes, but it also means extra work, such as running payroll and filing additional tax forms. Consider your business’s profit level and administrative capacity before making this decision.

When Does It Make Sense to Switch from an LLC to an S Corp?

Now that you understand how an S Corp differs from a standard LLC, the next question is whether the switch is worth it for your business. The answer often comes down to your profit level.

For many small business owners, S Corp election starts to make financial sense once net income reaches $40,000 to $60,000 per year. At this point, the potential savings on self-employment taxes can outweigh the added responsibilities, such as running payroll and filing extra forms.

To make the switch, there are a few key requirements to keep in mind:

• You’ll need to pay yourself a reasonable salary as the owner, based on the work you do. This salary will be subject to payroll tax at the same 15.3% rate as self-employment tax. 
• That salary must go through payroll, with proper tax withholdings.
• To have your S Corp status apply for the current year, Form 2553 must be filed by March 15. (Note that this deadline applies to calendar-year businesses; fiscal-year businesses should adjust based on their tax year start date.) In many cases, you can qualify for a late election, but working with a CPA is the best way to ensure it gets accepted by the IRS.

If you're based in Utah, the process is even simpler. Utah automatically follows the federal S Corp election, so there’s no need to file a separate form with the state. That means fewer hoops to jump through and faster tax benefits once the election is in place.

If your LLC is growing and you're looking for ways to reduce your tax liability while staying compliant, this may be the right time to consider making the switch.

Pros and Cons of Converting Your LLC to an S Corp

Switching to an S Corp can help lower your tax bill, but it also adds new responsibilities. Before you decide, it’s important to weigh the benefits and drawbacks based on your business size, income, and capacity to manage compliance.

Pros of S Corp Election:

• Lower self-employment taxes: Only your salary is subject to payroll tax. The remaining profit can be taken as distributions, which are not taxed the same way.
• Tax-efficient income structure: You split income between wages and distributions, potentially reducing what you owe in taxes.
• Improved business image: Some lenders and investors view S Corps as more established and better managed.

Cons of S Corp Election:

• More administrative work: You’ll need to run payroll, file Form 1120-S, and stay current on state requirements.
• Salary requirement: You must pay yourself a reasonable salary based on the services you provide.
• May not benefit low or unpredictable profits: If your income isn’t steady, the extra work might not be worth the savings.
• Decreased flexibility: If you have co-owners, an S corporation might not be the best option for your business, due to decreased flexibility.
• Real Estate Issues: If your LLC owns real estate, you should reconsider an S-Corporation Election. There are negative tax consequences to owning real estate in an S-Corp that should be considered before making an election.

Making the switch can lead to real savings, but it’s best suited for businesses with stable profits and the ability to handle the added workload.

How to Switch from LLC to S Corp (Step-by-Step Guide)

There are two ways to move from an LLC to an S Corporation. Most small businesses choose to elect S Corp tax status while keeping their legal structure as an LLC. This is the simpler and more common option. The other route, a full statutory conversion to a corporation, is more complex and usually only necessary if you plan to issue stock or change your ownership structure.

Option 1: Electing S Corp Tax Status Without Changing Your Legal Structure

This method keeps your LLC in place legally but allows you to be taxed as an S Corporation. It works well for owners looking to reduce self-employment tax while maintaining the flexibility of an LLC.

Step 1: Confirm Eligibility

To qualify for S Corp tax status, your business must meet these IRS requirements:

• Operate as a U.S.-based business
• Have 100 or fewer shareholders
• Issue only one class of stock
• Have shareholders who are individuals, certain trusts, or estates (no partnerships or corporations)

Step 2: File IRS Form 2553

• Submit Form 2553 to the IRS to elect S Corp status
• File within 75 days of the start of the tax year (typically by March 15 for a calendar-year business)
• If you miss the deadline, you may still qualify for a late election with proper justification

Step 3: Set Up Payroll and Pay a Reasonable Salary

• As the owner, begin paying yourself a reasonable salary
• Run payroll and withhold employment taxes accordingly
• Use a payroll system or an accountant to stay organized and compliant

Step 4: Adjust Accounting and Tax Filing

• Start filing your taxes using IRS Form 1120-S
• Track distributions and salary separately
• Issue a Schedule K-1 to each shareholder
• Update your estimated tax payments to reflect the new setup

Option 2: Converting Your LLC to a Corporation, Then Electing S Corp Status

Some businesses choose to fully convert their LLC into a corporation before electing S Corp tax status. This option may be required depending on the business's structure or long-term goals. It involves more legal steps than a simple tax election.

Step 1: Check if Your State Allows Statutory Conversions

• In Utah, statutory conversions are allowed
• Visit the Utah Division of Corporations to access forms and fee information
• In states that do not allow conversions, you must form a new corporation and merge the LLC into it

Step 2: Draft a Plan of Conversion

• Describe the new structure and ownership details
• Include how shares will be distributed and what formalities will be followed
• Outline how members will approve the plan

Step 3: Obtain Member Approval

• All LLC members must agree to the conversion
• Review your operating agreement for specific voting requirements

Step 4: File Articles of Conversion

• Submit the required paperwork to your state’s filing office
• File Articles of Incorporation for the new corporation as well

Step 5: Elect S Corp Tax Status Using Form 2553

• After forming the corporation, file IRS Form 2553 to choose S Corp taxation

Step 6: Update State and Foreign Registrations

• If your business is registered in other states, update your status in those states to reflect the new corporation

Step 7: Implement Corporate Formalities

• Draft corporate bylaws
• Issue stock certificates to shareholders
• Hold an initial board meeting
• Begin keeping annual meeting minutes and corporate records

Post-Election Compliance: What Happens After You Change from LLC to S Corp?

Once you change from an LLC to an S Corp, there are new responsibilities to manage. These are focused on payroll, tax filings, and recordkeeping. Staying compliant helps you keep your S Corp status and avoid penalties.

• File IRS Form 1120-S each year, along with Schedule K-1 for each shareholder
• Run payroll consistently for shareholder-employees and pay employment taxes
• Maintain accurate financial records and corporate documentation
• In Utah, you don’t need to file a separate state S Corp election or return, but you must keep your business registration current with the Utah Division of Corporations and file Utah Form TC-20S for state tax purposes.

Frequently Asked Questions About S Corp Election

Here are answers to common questions business owners ask before switching from an LLC to an S Corp. These help clarify the process and what to expect after the change.

How do I change my LLC to an S Corp with the IRS?

To elect S Corp status, you’ll need to file IRS Form 2553. This form must be submitted within 75 days of the beginning of the tax year for which you want the S Corp election to apply, typically by March 15 for existing businesses. If you miss the deadline, you may still be eligible for late election relief if you have a reasonable explanation. Note that this election changes your tax classification only; it does not alter your LLC’s legal structure.

Can a single-member LLC elect S Corp status?

Yes, a single-member LLC can elect to be taxed as an S Corporation, as long as it meets IRS eligibility rules. This includes having only allowable shareholders (such as individuals or certain trusts), issuing only one class of stock, and operating as a domestic business. Even though you're the sole owner, you'll need to pay yourself a reasonable salary through payroll and file the appropriate tax forms as an S Corp.

Do I need to change my legal structure to be an S Corp?

No, most small business owners do not need to change their legal entity type. An LLC can remain legally structured as an LLC while electing to be taxed as an S Corporation. However, some businesses may choose to convert their LLC into a corporation before making the election, especially if they are preparing for outside investment or expansion.

Will I need a new EIN or business bank account?

Not necessarily. If you're simply electing S Corp tax status for your existing LLC, your EIN and bank account typically remain unchanged. However, if you go through a statutory conversion or form a new corporation and dissolve the LLC, you’ll likely need to obtain a new EIN and set up new financial accounts for the corporation.

What is the deadline to elect S Corp status for the year?

The IRS requires that Form 2553 be filed no later than 2 months and 15 days after the beginning of the tax year in which the election is to take effect. For calendar-year businesses, this means March 15. If your business is newly formed, the form should be filed within 75 days of incorporation. Late elections are possible if you provide a valid explanation and meet other IRS criteria.

What are the drawbacks of switching to an S Corp?

While the tax savings can be significant, S Corp status also brings added complexity. You'll need to run payroll, file additional tax forms (such as Form 1120-S and Schedule K-1), and follow formalities like issuing reasonable salaries. These tasks may increase your accounting costs. Additionally, if your profits are inconsistent or low, the savings may not be enough to justify the extra administrative effort.

How much could I save in taxes by switching to an S Corp?

Savings depend on your net income and how much you pay yourself in salary. The main advantage is avoiding self-employment taxes (15.3%) on profits above your salary. For example, if you earn $100,000 and pay yourself a $50,000 salary, you only pay payroll taxes on the salary portion—potentially saving thousands in taxes. Keep in mind that both LLCs and S Corps may qualify for the Section 199A qualified business income deduction, which could affect overall savings. Consult a tax advisor for personalized calculations.

Do I need a CPA or a lawyer to make the switch?

It’s not required, but it’s highly recommended. A CPA can help you determine if S Corp status makes financial sense, ensure your election is filed correctly, and help you set up payroll and ongoing compliance. A lawyer may be needed if you're converting your legal entity to a corporation or updating your operating agreement. Professional guidance can prevent costly mistakes down the line.

Should You Convert Your LLC to an S Corp? Let’s Talk

Switching from an LLC to an S Corp can offer real tax savings, but it’s not the right fit for everyone. Factors like your business income, payroll needs, and long-term goals all play a role in whether the S Corp election makes sense. Tax laws and regulations can change. This information is for general guidance only and is based on rules as of August 2025. Always consult a qualified tax professional or attorney for advice tailored to your situation.

At CMP, we help business owners weigh the pros and cons based on their unique situation. Whether you're just exploring your options or ready to make the switch, our team is here to guide you through each step clearly and confidently.

If you own a business in Salt Lake, Logan, or St. George and want to find out whether an S Corp election could reduce your tax burden, we’re here to help.

Schedule a consultation today to get expert answers and a plan that fits your business.