lecting S-Corporation treatment can slash self-employment tax but adds payroll compliance. This guide explains who qualifies, how to file Form 2553, and exactly how much an S-Corp election can save a Delaware LLC owner in 2025.
Relevant IRC Codes & Definitions
| Code | Why It Matters |
|---|---|
| IRC §1361 | Defines S-Corporation eligibility—≤100 shareholders, one class of stock, only U.S. persons. |
| IRC §1362 | Election procedure via Form 2553 and timing rules (75-day/2-month-15-day window). |
| IRC §1402 | Imposes 15.3 % self-employment tax on default LLC earnings. |
| IRC §3121 | Governs FICA payroll taxes on “reasonable compensation” paid to S-Corp shareholder-employees. |
| IRC §199A | QBI deduction rules—wages paid reduce qualified income but also meet wage-limit tests. |
IRS & State Form References
| Purpose | Default LLC | After S-Corp Election |
|---|---|---|
| Federal Return | Schedule C (SMLLC) or Form 1065 | Form 1120-S |
| Payroll Filings | None | Form 941 (quarterly), Form 940 (annual FUTA), W-2/W-3 |
| Election Paperwork | — | Form 2553 (or Form 8832 + 2553 for multi-member) |
| Delaware Annual Fee | $300 flat LLC tax (unchanged) | Still $300; no Franchise Tax |
Real-World Example: 2025 Numbers
| Item | Default LLC Draw | S-Corp (Salary +\ Dividends) |
|---|---|---|
| Net Profit | $180,000 | $180,000 |
| Owner Salary (W-2) | — | $90,000 |
| SE Tax vs. FICA | $27,540 SECA | $13,770 FICA* |
| Fed. Income Tax (22 %) | $31,680 | $19,800 (salary) + $19,800 (dividends) = $39,600 |
| Total Fed. + Payroll Tax | $59,220 | $53,370 |
| *Includes employer + employee share. | ||
| Savings ≈ $5,850 Year 1 (before payroll service costs). |
Step-by-Step Election & Payroll Checklist
- Confirm Eligibility – Single-member or multi-member LLC with only U.S. owners.
- Prepare Form 2553 – File within 75 days of desired effective date (e-sign OK).
- Set “Reasonable Compensation” – Benchmark salary using market data (IRS scrutiny target).
- Register Payroll Accounts – IRS EFTPS, state withholding IDs (if employees in any state).
- Run Payroll – Withhold FICA/FIT; file Form 941 quarterly, issue W-2 in January.
- Adjust Estimated Taxes – Only dividends now flow to Schedule E; draws become distributions.
- Maintain Books – Track retained earnings separate from paid-in capital for §1368 distributions.
Conclusion
For Delaware LLC owners earning $80k–$250k in annual profit, an S-Corp election often cuts self-employment tax enough to outweigh payroll costs—if you pay a defensible salary and stay current on Forms 941 & W-2. Lower profits? The paperwork rarely pays off. Sky-high profits? Consider a C-Corp strategy.
Call to Action
Curious whether S-Corp status will truly save you money?
👉 Book an S-Corp feasibility call with Anshul Goyal, CPA. We calculate savings, file Form 2553, and set up turnkey payroll so you stay IRS-proof.
Disclaimer
This article is for informational purposes only and does not constitute legal, tax, or financial advice. The S-Corp election’s benefits depend on profit level, reasonable-compensation standards, state nexus, and shareholder residency. Anshul Goyal, CPA EA FCA is licensed in the U.S., admitted to practice before the IRS, and a Chartered Accountant in India. Always consult a qualified professional before electing S-Corp status or altering payroll.
FAQs (Top 5 High-Searched)
1. Can a foreign-owned Delaware LLC elect S-Corp status?
No—only U.S. citizens or residents can own S-Corp stock.
2. When is Form 2553 due for 2025?
Within 75 days of 1 January 2025 (by 15 March) for full-year effect.
3. What if I file late?
IRS allows late relief if “reasonable cause” shown—file ASAP with Rev. Proc. 2013-30 statement.
4. Is the $300 Delaware fee affected?
No. LLCs pay the same flat $300 even after S-Corp election.
5. Do I still get the 20 % QBI deduction?
Yes—on the profit left after paying yourself a reasonable salary, subject to wage limits.
About Our CPA
Anshul Goyal, CPA EA FCA has advised 2,000+ founders on entity elections, cutting over $200 million in payroll/self-employment taxes while ensuring bullet-proof IRS compliance.