Updated 18 April 2026

Converting Your LLC: To S-Corp, to C-Corp, and Back Again (Without Touching State Law)

Your LLC doesn't convert into anything. It stays an LLC. The "conversion" is entirely federal tax: Form 2553 flips it to S-corp taxation. Form 8832 can flip it to C-corp taxation. Neither requires touching your state LLC registration.

Direction 1: LLC Default to LLC Taxed as S-Corp

This is the most common "conversion." No state filing required. Steps:

1

File Form 2553 with IRS

All members as of the effective date must sign Part II consents. File by March 15 for current year. If late, see Rev Proc 2013-30 relief on the /election page.

2

Register for state unemployment insurance (SUI) and state withholding as an employer. Required before running payroll. Takes 1-4 weeks depending on state.

3

Set up payroll service

Gusto, OnPay, Patriot, ADP Run, or Paychex. Minimum one payroll run per year. Set up before the first salary payment. Cost $40-$80/month.

4

Issue first W-2 salary payment

Run at least one payroll before year-end to generate a valid W-2. The IRS expects regular salary payments, not a lump-sum at year-end.

5

Amend operating agreement

Note the salary vs distribution structure in the operating agreement. This is not legally required but is best practice documentation for the entity formality record.

6

Open separate business bank account

Required for entity formality. Never mix personal and business funds. See bestbusinesscheckingaccount.com for options.

7

Establish reasonable salary documentation

Run BLS OEWS comparable-wage analysis before the year starts. Save the printout. See /reasonable-salary for the methodology.

8

File Form 1120-S at year-end

Due March 15 (with automatic 6-month extension to September 15). Issue K-1s to all members. File state S-election equivalent where required (NY CT-6, NJ CBT-2553).

Year 1 Costs: LLC to S-Corp

Item	Low	High	Notes
Form 2553	$0	$0	IRS form, free to file
Payroll provider setup	$0	$150	Gusto: $0 setup; ADP has setup fees
State employer registration	$0	$100	Varies by state; many are free online
Operating agreement amendment	$0	$500	DIY to attorney; not legally required
Payroll monthly (annualised)	$480	$1,800	$40-$150/month for single-owner S-corp
1120-S preparation (year 1)	$800	$2,500	Solo CPA to CPA firm; often more in year 1
State S-election forms (NY, NJ, etc)	$0	$400	Varies; nominal attorney fee if applicable
TOTAL YEAR 1	$1,280	$5,450	Typical range $1,800-$4,000

Direction 2: LLC Default to LLC Taxed as C-Corp (Check-the-Box)

File IRS Form 8832 (Entity Classification Election, "check-the-box") to elect C-Corp tax treatment. The LLC thereafter files Form 1120 (C-Corp return) annually. Income is taxed at the corporate 21% rate, and dividends distributed to owners face a second tax at qualifying dividends rates (0%, 15%, or 20%). This is the double-taxation structure.

The check-the-box C-Corp election is rarely the right move for a solo operator or service business. The main reason to do it is QSBS eligibility under IRC Section 1202 (qualified small business stock, which can exclude $10M+ of gain from tax after a 5-year hold). But QSBS requires a C-Corp incorporated as a corporation, not an LLC that elected C-Corp taxation. Most VC-track founders re-incorporate rather than check-the-box.

60-month rule: Once you check the box to a particular classification, you generally cannot re-elect a different classification for 60 months without IRS consent (Treasury Reg 301.7701-3(c)(1)(iv)).

Direction 3: LLC-as-S-Corp Back to LLC Default (Revocation)

If the S-election is not working (income dropped, state tax changes, ineligible member added), you can revoke. Majority member consent required. File a statement of revocation with the IRS service centre by March 15 for current-year effect.

After revocation: 5-year waiting period to re-elect without IRS consent (IRC Section 1362(g)). If you revoke and want to re-elect within 5 years, you need to petition the IRS for consent. This is not automatic.

Use the Post-Termination Transition Period (PTTP, IRC Section 1377(b)): you have 1 year after S-election termination to distribute accumulated AAA (Accumulated Adjustments Account) tax-free to shareholders. This is an important window to use before the year runs.

Common Pitfalls

!Running the S-election but forgetting to amend the operating agreement to reflect salary vs distributions. Not legally required but important for audit documentation.

!Missing the first payroll run of the year. The IRS expects a reasonable salary to be paid throughout the year, not a single year-end lump sum.

!Confusing 'LLC conversion' with 'state-law conversion': filing Form 2553 does not change your state LLC registration. You do not need to re-register or pay state conversion fees.

!Forgetting state-level S-election (New York CT-6, New Jersey CBT-2553). Without these, your LLC has S-Corp federal status but pays full state corporate tax.

!Accidentally busting the election by adding an ineligible member (non-US individual, corporation, incompatible trust type). The election terminates automatically, potentially mid-year.

!Electing and running payroll mid-year but not adjusting quarterly estimated taxes on the personal 1040. S-Corp K-1 income requires separate quarterly 1040-ES payments.

Form 2553 Details Eligibility Requirements Ongoing Compliance Costs Reasonable Salary Payroll Services Best Business Checking Account C-Corp vs S-Corp