Step One: Establish the Right Entity

Your private practice must first be structured as a Limited Liability Company (LLC) or Professional Limited Liability Company (PLLC) before it can elect S corporation status.

This requires filing formation documents with your Secretary of State and paying state-specific fees. Requirements and costs vary widely by state, so entity setup should be approached deliberately.

Once formed, your LLC or PLLC may elect S corporation tax treatment with the IRS.

Why Practices Choose S Corporation Status

S corporation status can deliver meaningful benefits when aligned with your income level and long-term goals, including:

• Potential payroll tax savings
• Clear separation between owner compensation and business profit
• Improved structure for financial administration and reporting

However, S corporations come with higher compliance costs; payroll requirements, additional filings, and ongoing administrative oversight. The tax savings must outweigh these costs to make the election worthwhile.

When Does S Corp Status Make Sense?

As a general rule of thumb, S corporation status becomes advantageous once your practice generates $80,000–$100,000 in annual net income. For most owners, the sweet spot begins closer to $100,000, when payroll tax savings begin to exceed the added costs of compliance.

That said, income isn’t the only consideration. An owner may elect S corporation status regardless of income if they:

• Plan to add partners or shareholders
• Anticipate selling or transferring ownership
• Want enhanced liability protection beyond a sole proprietorship
• Prefer pass-through taxation without C corporation double taxation

This decision should always be evaluated in the context of your growth plans, risk profile, and exit strategy.

Can a Sole Proprietor Elect S Corp Status?

No. A sole proprietor must first form a legal entity. Only an LLC or PLLC may file the IRS election to be taxed as an S corporation.

How to Register Your Practice as an LLC or PLLC

While requirements vary by state, the process generally includes:

• Determining whether your state requires an LLC or PLLC
• Registering a DBA name (if applicable)
• Obtaining an Employer Identification Number (EIN)
• Selecting a registered agent
• Filing Articles of Organization with your Secretary of State
• Paying required state fees
• Receiving confirmation of formation from the state

Entity formation is foundational. Errors here can create tax, legal, and compliance issues later—this step should not be rushed.

How an LLC or PLLC Elects S Corporation Status

To elect S corporation tax treatment, your entity must file IRS Form 2553.

Information Required on Form 2553

You’ll provide general business details, including:

• Legal entity name and EIN
• Business address
• Date and state of formation
• Tax year the election will take effect
• Effective date of the election
• Reason for filing (new entity, late election, classification change)

You’ll also include registered agent information and shareholder details. For single-owner practices, this typically includes:

• Name and address
• SSN or EIN
• Ownership percentage
• Date shares were acquired
• Consent to act as shareholder

Accuracy matters, errors or omissions can delay or invalidate the election.

S Corporation Election Deadlines

The deadline to file Form 2553 is two months and fifteen days after the start of the tax year in which the election will apply.

For example:

• To be taxed as an S corporation for 2025, the election must be filed by March 16, 2026.
• You may file at any point during a year to apply the election for that same year.
• Late elections may still be accepted if eligibility requirements are met, but they require additional representations and documentation.

The Magnolia Perspective

S corporation status is not a checkbox, it’s a planning decision. When implemented at the right time and supported with proper payroll, bookkeeping, and tax strategy, it can meaningfully improve after tax outcomes.

When implemented too early, it often creates unnecessary cost and complexity.

Our role is to help you determine when the move actually serves you, not just when it’s available.