As a Texas business owner, you’ve likely heard about the potential tax savings of an S Corporation. It’s a powerful tool, but the single most common question we get in our Houston CPA practice is, “When can I make S Corp election?”
The IRS is famously strict about deadlines. Missing the window for electing S corporation status can mean missing out on an entire year of potential tax savings on your business profits. Getting the timing right is not just important; it’s everything.
This guide will break down the exact IRS deadlines for both new and existing businesses, explain the eligibility requirements, and discuss what options you may have if you realize you’re late.
First, Does Your Business Qualify for S Corp Status?
Before you worry about the “when,” you need to confirm the “if.” The IRS has a specific checklist every business must follow to qualify for S Corp status.
Here are the main eligibility rules that you need to know before planning for your yearly taxes:
- Your business must be a domestic corporation (or an entity like an LLC that chooses to be taxed as one).
- You can have no more than 100 shareholders.
- Your shareholders must be individuals, certain trusts, or estates. A partnership or another corporation cannot be a shareholder.
- You can only have one class of stock.
The good news is that most Texas small businesses structured as a corporation or a limited liability company (LLC) will likely meet these requirements.
The Critical Deadlines: When Can I Make an S Corp Election?
This is where timing is absolutely critical, and that’s why we often guide businesses through our tax preparation services. The deadline for making the election depends on whether your business is brand new or has been operating for a while. You officially make the election when you file Form 2553, “Election by a Small Business Corporation,” with the IRS.
For an Existing Business (LLC or C Corp)
For a business that’s already up and running, the rule is very specific. To have your S Corp status be effective for the current tax year, you must make the election no more than two months and 15 days after the beginning of that tax year.
- A Clear Example: For a business that uses the calendar year (January 1 – December 31) for its taxes, the deadline to make the S Corp election for 2025 is March 15, 2025. If you file on March 16th, the election will generally not be effective until the 2026 tax year.
For a Brand New Business
For a brand new company, the clock starts ticking from the moment your business officially begins. You have a window of two months and 15 days from the date your business’s first tax year begins. This could be the date the business was legally formed, the date it first acquired assets, or the date it first started conducting business.
- A Clear Example: If your new LLC was officially formed and began operations in Texas on June 1, 2025, your deadline to file Form 2553 would be August 15, 2025.
Missed the Deadline? Understanding Late Election Relief
This is a common and stressful situation. Many business owners don’t realize how much S Corp status could have saved them until they are well past the deadline. Answering the question “When can I make S Corp election?” can be frustrating when you learn the answer was “last month.”
Fortunately, the IRS has a provision for this. You may be able to get relief for a late filing if you can show you had “reasonable cause” for not filing on time. This is a complex area where professional guidance is highly recommended.
We recently worked with the owner of a Houston-based consulting LLC who was also contemplating when can I make an S Corp election. The owner was being taxed as a sole proprietorship and didn’t realize how much S Corp status could have helped them until July.
Because they had a reasonable cause for the oversight (they were focused on managing explosive growth and were unaware of the deadline) and acted quickly once they realized the issue, we were able to guide them through the process of filing for late election relief along with their Form 2553.
The IRS accepted the late election, making it retroactive to the beginning of the year. This allowed them to capture the significant tax savings they would have otherwise lost.
So, What’s the Takeaway?
The answer to “When can I make an S Corp election?” is a hard and fast deadline that every business owner should know. For an existing calendar-year business, it’s March 15th. For a new business, it’s two and a half months from your start date. Timing is absolutely critical when electing S corporation status.
Tackling these deadlines and the complexities of late election relief can be challenging. A mistake can be costly.
Ready to make a smart tax move for your business? If you are a Texas business owner considering this strategic step, the CPA-led team at Dabney Tax & Accounting Services can help. Contact us to discuss your situation and get the guidance you need for your election.
FAQs About S Corp Election
How do I actually make the S Corp election?
You must file Form 2553, which is officially titled “Form 2553, Election by a Small Business Corporation.” The form must be completed accurately and signed by all shareholders. It is a critical compliance document that requires careful attention to detail to be accepted by the IRS.
Can my Texas LLC be an S Corp?
Yes. A limited liability company (LLC) is a legal entity type created by the state of Texas. An S-Corp is a tax status you elect with the IRS. By default, a single-member LLC is taxed like a sole proprietorship. However, an LLC can file Form 2553 to elect to be taxed as an S-Corporation.
Does the state of Texas recognize the S Corp election?
Yes, Texas recognizes the federal S Corp election. This is important because once you make the election with the IRS, you are generally not subject to the Texas Franchise Tax at the entity level. You are, however, still required to file the annual informational reports with the Texas Comptroller.
What are my responsibilities after electing S corporation status?
Once you are electing S corporation status, your responsibilities change. You must run payroll and pay yourself a “reasonable salary” as an employee-owner. This is a major operational shift from simply taking owner’s draws and is a key compliance requirement for maintaining your S Corp status.
