What year-end moves should S-Corp owners make, and what's the deadline to elect S-Corp status for 2027?

Most S-Corp year-end moves run through payroll. If it isn't on a paycheck dated by December 31, 2026, it generally doesn't count for 2026.

The S-Corp election itself is the exception. It is not a December deadline at all: a calendar-year LLC has until March 15, 2027 to file Form 2553 and be an S-Corp for all of 2027.

Who this applies to

• Owners of calendar-year S corporations, including LLCs taxed as S-Corps, who take a W-2 salary from their own company.
• LLC owners deciding whether to elect S-Corp status starting January 1, 2027, and sole proprietors weighing whether to form an LLC and elect.

Who it doesn't

• S corporations with a fiscal year. Several dates here move, and this article assumes a calendar year.
• Partnerships and C corporations that aren't electing S status. The more-than-2% shareholder health insurance rule and the S-Corp payroll moves here don't apply to them, although an eligible C corporation or multi-member LLC can still file Form 2553 for 2027.
• Owners of businesses with inventory, such as retail or e-commerce. Year-end inventory planning is its own topic and isn't covered here.

What is the deadline to elect S-Corp status for 2027?

For a calendar-year company, March 15, 2027. The Form 2553 instructions allow the election no more than 2 months and 15 days after the start of the tax year it takes effect, and January 1 plus 2 months and 15 days is March 15.

You can also file early. A company that already has a tax year can make the election at any time during that prior year, so a Form 2553 filed in the last weeks of 2026 can name January 1, 2027 as its effective date.

Three details trip people up:

1. New companies. For a company formed in 2027, the 2-month-15-day clock starts on the earliest of the date it first had owners, first had assets or began doing business. That date, not January 1, goes on line E.
2. Late filing. A Form 2553 filed after the window generally takes effect the following year. Late election relief under Rev. Proc. 2013-30 can be available within 3 years and 75 days of the intended effective date. It requires that lateness was the only reason the election failed, that there was reasonable cause, and that the company and every shareholder reported income as if the election were in effect.
3. Confirmation. The IRS says a company should generally hear back within 60 days. Form 2553 goes in by mail or fax, so build in time before your first 2027 payroll.

Whether the election makes sense at your profit level is a separate question, covered in when an LLC should elect S-Corp status.

Is your 2026 salary actually paid?

An S-Corp has to pay its owner reasonable compensation for the services they provide before taking distributions, according to the IRS. The salary you meant to pay doesn't count. The salary that ran through payroll does.

Year end is the last chance to close a gap. If the salary you can support is $90,000 and only $60,000 has run through payroll, the remaining wages need to be paid, with withholding, on a payroll dated by December 31.

This is also the place to correct the opposite mistake: taking all your money as distributions and no salary at all.

Can year-end withholding fix missed estimated payments?

Yes, and an S-Corp owner controls the lever. Under IRC section 6654(g), income tax withheld from wages is treated as paid in equal parts on each of the four estimated tax due dates, unless you choose to use the actual dates.

So federal tax withheld from a December paycheck counts as if a quarter of it were paid in April, June, September and January. A late estimated payment only counts from the day you send it.

The catch is cost. A bonus is wages, so Social Security and Medicare apply on top: for 2026, 6.2% each for employee and employer on wages up to $184,500, and 1.45% each with no cap.

Withholding heavily from salary you were already going to pay costs nothing extra. Creating a bonus only to avoid the penalty adds up to 15.3% in combined payroll tax, which can cost more than the penalty itself. The full math is in missed estimated payments.

Is your health insurance on your W-2?

If you own more than 2% of an 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 when paid under a plan covering all employees or a class of employees, they 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 you meet its other requirements. For example, no deduction is allowed for any month you were eligible for a subsidized health plan through another employer of yours or an employer of your spouse or a dependent.

Under Notice 2008-1, the company has to pay the premiums, or reimburse you for them, in the current tax year, and the amount has to be reported on that same year's W-2. If you paid 2026 premiums personally, the fix is a company reimbursement before December 31, with the total added to your final 2026 W-2. Missing the step can cost the deduction.

Will your salary limit your QBI deduction?

The qualified business income deduction under section 199A starts at 20% of qualified business income from each business. Your own reasonable salary is not QBI, so the salary decision cuts both ways.

Above a threshold, the deduction is capped by the W-2 wages your company pays. For 2026, the threshold is taxable income of $201,750 for single filers ($403,500 married filing jointly), and the cap is fully in effect at $276,750 ($553,500 joint), per Rev. Proc. 2025-32. The cap is the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of the original cost of qualified property.

For a business that isn't a specified service trade or business (SSTB), a salary that's too low can choke the deduction, and a higher salary can lower total tax. For an SSTB, such as consulting, health, law or financial services, the deduction phases out entirely above the top of the range, so more salary doesn't rescue it.

Both rules run on wages actually paid, which makes this a December decision. The details are in how S-Corp salary affects the QBI deduction.

Are your 401(k) deferrals in before the last paycheck?

For a solo S-Corp owner, a 401(k) has two pieces. The employee deferral comes out of your W-2 wages; the employer contribution comes from the company.

For 2026, the employee deferral limit is $24,500, plus an $8,000 catch-up at age 50 or older ($11,250 instead for ages 60 to 63). Total contributions to one person's account are capped at $72,000, not counting catch-ups, per Notice 2025-67. If your 2025 Social Security wages from the company were over $150,000, your 2026 catch-up generally has to go in as Roth.

The timing is different for each piece:

• Employee deferral. Under Treasury regulations, a deferral election can only cover pay that isn't yet available to you, and only pay after the plan is adopted and in effect. Your deferrals come out of your W-2 paychecks, so once the last 2026 paycheck is out, the 2026 deferral room is gone.
• Employer contribution. Deductible up to 25% of W-2 compensation. Section 404(a)(6) treats a contribution made by the company's return due date, including extensions, as made on the last day of the prior year.

Have you reconciled your accountable plan and your basis?

Accountable plan. Your company reimburses your mileage, home office, phone and similar costs through an accountable plan. Under the fixed date safe harbor in the regulations, substantiating within 60 days and returning any excess within 120 days is timely. A cash-method company generally deducts an expense in the year it pays it, so reimbursing 2026 costs before December 31 keeps them in 2026.

Basis. Basis decides whether distributions are 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. Form 7203 goes with your personal return if you claim a loss, receive a non-dividend distribution, dispose of stock or receive a loan repayment from the company.

A worked example

How it changes for an S-Corp owner

Every move above exists because you are both the employer and the employee. A sole proprietor's income flows to Schedule C, and estimated payments, retirement contributions and health insurance follow the self-employment rules.

An S-Corp owner gets payroll in exchange. Payroll is what makes the withholding fix, the QBI wage lever and the W-2 health insurance treatment possible. It is also what puts a hard December 31 date on each of them and on your 401(k) deferrals.

If you are electing for 2027, the year-end work is setup, not savings. Settle the salary you can support, have payroll ready for the first January paycheck, and put the accountable plan in writing before the first reimbursement.

The bottom line

For 2026, the S-Corp year-end checklist is a payroll checklist: salary paid, withholding set, health insurance on the W-2, 401(k) deferrals elected, reimbursements made, basis checked. Each one needs to be done by December 31.

The 2027 election isn't on that list. File Form 2553 any time between now and March 15, 2027, and earlier is better so the IRS acceptance arrives before your first payroll.

If you want the 2026 numbers checked and 2027 set up before the first paycheck, the 20-minute intro call is the place to start.