2026 LLC → S-Corp Transition Checklist

Before you file

Confirm net profit has been ≥$60K–$80K for at least two prior years (smoother the better — one strong year doesn't justify the overhead).
Run the BizTaxMetrics calculator with your actual numbers and your state; confirm the modeled benefit is at least 2–3× the S-Corp admin overhead (~$1,200/yr default).
Decide on a defensible reasonable salary — what you would pay a comparable W-2 employee doing the same work, in your geography, for your industry.
Talk to a CPA or EA. The election is reversible but reversing it is messy. Confirm the timing for your specific situation.
Confirm your LLC's operating agreement permits an S-Corp election (most modern ones do).

File IRS Form 2553 (Election by a Small Business Corporation). All current shareholders sign.
File by the 15th day of the 3rd month of the tax year the election takes effect, OR within 75 days of formation for a new entity. Late relief is available under Rev. Proc. 2013-30.
Receive the IRS CP261 confirmation letter before you treat the election as effective.
File Form 8832 (Entity Classification) only if you've previously elected C-Corp treatment and are switching back.

File the parallel state-level S-Corp election. CA, NY, NJ, and a handful of other states require their own form.
Confirm whether your state assesses a corporate franchise tax (CA $800 minimum, NJ CBT, NY Article 9-A) — fold that into your modeled savings.
Update your Secretary of State filings if the entity type changes on the state record.

Get a federal EIN if you don't have one (you should — every LLC with employees needs one).
Open a payroll account with Gusto, ADP, Paychex, or comparable — expect $30–$80/month.
Set up state withholding and state unemployment insurance (SUI) accounts.
Run your first payroll for the W-2 salary you set on the calculator.
Issue the W-2 at year-end; the LLC's old Schedule C is replaced by the S-Corp's Form 1120-S + your K-1.

Move from a sole-prop / single-member chart of accounts to a corporate chart (equity, distributions, payroll liabilities).
Adopt a corporate book year (calendar year unless you have a fiscal year).
Open a dedicated business bank account in the S-Corp's name (separation of entity and owner is non-negotiable).
Keep personal and corporate expenses rigorously separate — piercing the veil is a real risk if you co-mingle.

File Form 1120-S (S-Corp return) and issue Schedule K-1 to all shareholders by March 15.
Hold an annual board meeting / shareholder resolution documenting the salary and distributions (even a single-owner S-Corp).
Re-evaluate the salary every year. If your business grows, the salary should grow with it.
Re-evaluate the election every 2–3 years. A drop in profit below your salary level, or a major life change, can flip the math.

Setting the salary below 30% of net profit without a defensible reason. The IRS may reclassify distributions as wages.
Treating the S-Corp's bank account like a personal account — owner draws beyond salary + distribution trigger reclassification.
Missing payroll tax deposits. The trust-fund recovery penalty is personal, not corporate.
Forgetting state-level obligations when the S-Corp is in a different state from where the owner lives.
Electing in a year the LLC has a loss — the S-Corp election doesn't help, and the loss doesn't flow through the same way.