S corporation electionn.
Reviewed by Owen Hathaway, AttorneyUpdated June 1, 2026A tax election that lets a corporation or LLC pass income through to owners (avoiding double taxation) while potentially reducing self-employment tax. It is not a separate kind of entity.
An S corporation election is a federal tax choice, made on IRS Form 2553, that lets an eligible corporation or LLC be taxed under Subchapter S. Income passes through to the owners and is taxed once at their level, avoiding the double taxation of a C corporation. An S election can also reduce self-employment tax on a portion of profits paid as distributions rather than wages.
An S corporation is a tax status, not an entity type. The business is still an LLC or corporation under state law; only its tax treatment changes. Eligibility rules limit the number and type of owners.
The election is governed by federal tax law (26 U.S.C. § 1361 et seq.); Form 2553 must be filed on time. Colorado and Wyoming both respect the federal pass-through treatment for state purposes. Whether an S election saves money depends on the specific numbers and requires paying owner-employees reasonable compensation.
Related terms
- limited liability companyA business structure that shields its owners' personal assets from the company's debts and lawsuits, while staying simpler and more flexible to run than a corporation.
- employer identification numberThe IRS's nine-digit tax ID for an entity that is not an individual, such as a business, trust, or estate. It works like a Social Security number for that entity: used to open accounts and file returns.