I elected S-Corp. What do I need to set up next?

The election is the easy part. Form 2553 is a short form; the payroll tax savings only show up if the company is set up to run as an S-Corp after the election takes effect.

That setup has six pieces: confirm the election, start payroll, set a reasonable salary, adopt an accountable plan, move health insurance onto your W-2, and track basis. Then adjust your estimated taxes, recheck your retirement plan and learn the new filing calendar.

Who this applies to

• Owners of an LLC or corporation that just filed Form 2553, or elected recently and never finished the setup.
• Owners who work in the business and plan to take money out of it, the usual case for consultants, agents and other service businesses.
• Owners whose election takes effect January 1, 2027. The setup belongs before the first 2027 paycheck.

Who it doesn't

• Owners still deciding whether to elect. Start with when an LLC should elect S-Corp status.
• S corporations with a fiscal year. Several dates below assume a calendar year.
• Owners who do no work for the company. The salary and payroll pieces turn on performing services.
• Former C corporations with earnings and profits from their C years. Their distributions follow extra ordering rules this checklist doesn't cover.

Step 1: Confirm the IRS accepted the election

The Form 2553 instructions say a company should generally get a decision within 60 days. If it hears nothing within 2 months (5 months if it checked box Q1), it should follow up by calling 1-800-829-4933.

Acceptance usually comes as a CP261 notice. The IRS says to keep it in your permanent records, and it shows the effective date. Check that date against the one you requested: if the form wasn't filed in time for the requested date, the notice shows a different one, and late election relief under Revenue Procedure 2013-30 may be available.

The election stays in effect until it is terminated or revoked. Don't file Form 1120-S for any year before the election takes effect.

Step 2: Put yourself on payroll

Publication 15 is direct about it: corporate officers who work in the business are employees of the corporation. After the election, you are an employee of your own company.

That means the full employer setup:

• Your own Form W-4, so federal income tax is withheld from your salary.
• Federal deposits of withheld income tax and Social Security and Medicare tax, made by electronic funds transfer (EFTPS, IRS Direct Pay or the IRS business tax account). For 2026, Social Security is 6.2% each for employer and employee on wages up to $184,500, and Medicare is 1.45% each with no cap. The wage base adjusts each year.
• Deposit schedule. A new Form 941 filer is a monthly depositor for its first calendar year, with each month's taxes due by the 15th of the next month. The exception: $100,000 or more of accumulated tax on any day is due the next business day, and the company becomes a semiweekly depositor for the rest of that year and the next.
• Form 941 each quarter, due April 30, July 31, October 31 and January 31.
• Form 940 for federal unemployment tax, and Forms W-2 and W-3, all due January 31. A deadline that falls on a weekend or legal holiday moves to the next business day, so the January 31, 2027 dates land on February 1.
• State accounts. A Georgia company with employees registers for a withholding number through the Georgia Tax Center and for a state unemployment tax account with the Georgia Department of Labor. Other states have their own versions.

Most owners use a payroll service for this. The point is the same either way: the salary has to actually run through payroll, with withholding and deposits.

Step 3: Set a reasonable salary, and write down how

The IRS says an S-Corp must pay a working shareholder reasonable compensation before taking non-wage distributions. If it doesn't, the IRS can reclassify distributions as wages subject to employment tax.

There's no ratio in the rules, and the "60/40 split" isn't IRS guidance. The number that holds up is a market wage for the work you do, documented with wage data before anyone asks. The method is in how reasonable salary is set for an S-Corp owner.

Step 4: Adopt an accountable plan

On Schedule C, you deducted mileage, home office and phone yourself. After the election, those are costs you incur as an employee, and section 67(h) bars miscellaneous itemized deductions, including unreimbursed employee expenses, for every tax year beginning after 2017.

The fix is a reimbursement from the company under an accountable plan. Set it up before the first reimbursement, keep the mileage log, and see how S-Corp owners deduct a home office for the extra test the home office has to pass.

Step 5: Move health insurance onto the company

If you own more than 2% of the S-Corp, the IRS treats health insurance premiums the company pays for you as wages. They go in Box 1 of your W-2 but, under a plan covering all employees or a class of employees, aren't subject to Social Security, Medicare or FUTA.

That reporting is what lets you take the self-employed health insurance deduction on your personal return, if the other requirements are met. The IRS says the company has to pay the premiums or reimburse you, and report them on your W-2, even when the policy is in your name.

Premiums you pay personally with no reimbursement don't qualify for that deduction. It also isn't allowed for any month in which you or your spouse were eligible for a subsidized health plan offered by an employer of either of you. The full rules are in how S-Corp owners deduct health insurance.

Step 6: Start tracking basis on day one

Basis is your investment in the company, adjusted every year for income, losses and distributions. It is the first test for whether a distribution is tax-free and whether your share of a loss is deductible.

Losses are limited to your stock basis plus loans you made directly to the company; the excess carries forward indefinitely. A distribution larger than your stock basis is taxed as capital gain, and loan basis doesn't absorb distributions. These rules assume the company has no earnings and profits left from years as a C corporation; a former C corporation can owe dividend tax on distributions even within basis.

Form 7203 goes with your personal return in any year you claim a loss, receive a non-dividend distribution, dispose of stock or receive a loan repayment from the company. For most owners who take distributions, that means every year. Start the record with your opening stock basis on the date the election took effect; more in S-Corp basis and Form 7203.

Step 7: Fix your estimated taxes

As a sole proprietor, quarterly estimates probably covered everything. Now part of your tax is withheld from salary, and part isn't.

Distributions have no withholding, and the company's profit passes through to your personal return either way. Under section 6654(g), income tax withheld from wages is treated as paid evenly on each estimated tax due date, unless you show the actual dates. That makes extra withholding from salary a clean way to cover the gap, alongside or in place of quarterly estimates.

The usual penalty safe harbor still applies: pay the lesser of 90% of this year's tax or 100% of the tax shown on last year's return, or 110% if last year's adjusted gross income was over $150,000 ($75,000 married filing separately). The prior-year option requires that last year was a full 12-month year and you filed a return for it. See missed estimated tax payments if you're already behind.

Step 8: Recheck your retirement plan

A SEP or Solo 401(k) set up when you were a sole proprietor was figured on net self-employment earnings. After the election, the IRS says contributions can only be made from compensation, meaning your W-2 salary; S-Corp distributions don't count. Compare the two in Solo 401(k) or SEP IRA.

The new filing calendar

• Form 1120-S, due the 15th day of the third month after year end: March 15, 2027 for a calendar 2026 return. Form 7004 gives an automatic extension, generally 6 months, to file but not to pay.
• Schedule K-1 for each shareholder, which carries the company's income to your Form 1040.
• Late filing penalty. For 2025 returns, $255 for each month or part of a month late, up to 12 months, multiplied by the number of shareholders, even with no tax due. The figure adjusts for inflation, so check the current instructions for later years.
• Georgia Form 600S. A Georgia S corporation files Form 600S. Georgia recognizes S status only if every nonresident shareholder signs a consent agreement (Form 600S-CA), filed with the first Georgia return the company has to file. Without it, the Georgia S election is terminated.

A worked example

How it changes for an S-Corp owner

This whole checklist is the S-Corp change. On Schedule C, there was one return, one tax on profit and no payroll. After the election, you are the employer and the employee, with payroll filings, a second tax return and expenses that only count if the company reimburses them.

Each piece protects part of the savings. Skip payroll or the salary, and the IRS can reclassify distributions; skip the accountable plan or the health insurance step, and deductions disappear. Skip basis, and you can't prove your distributions are tax-free.

For an election starting January 1, 2027, the year-end moves article covers what to finish before December 31.

The bottom line

Filing Form 2553 doesn't save anything by itself. The savings come from a company that runs payroll, pays a defensible salary, reimburses expenses under a plan and keeps its basis records.

Do the setup once, before the first paycheck, and the rest is routine.

If you want the setup checked or built for your company, the free 20-minute intro call is the place to start.