New Business Owner: When to File for S Corp Status During EIN Application?

15 You should select "sole proprietor" on your EIN application since that reflects your current status. The S Corp election comes after you've established your business entity. Here's how the process typically works: First, you need to form a corporation or LLC at the state level. Then you apply for an EIN using that entity type. After those steps are complete, you file Form 2553 (Election by a Small Business Corporation) with the IRS to be treated as an S Corporation for tax purposes. If you're currently operating as a sole proprietor and haven't formed a corporation or LLC with your state yet, you're getting ahead of yourself in the process. The correct order is: 1) Form your business entity with the state, 2) Get an EIN for that entity, 3) File Form 2553 for S Corp tax treatment.

8 I went through this exact process last year and was so confused! After weeks of research and a few expensive mistakes, I finally discovered taxr.ai (https://taxr.ai) which saved me SO much time. They have this amazing business formation tool that walks you through the entire process step-by-step. It confirmed what the previous commenter said - you definitely need to form your business entity at the state level first, then get your EIN, and only then can you file for S Corp status. The tool asked me questions about my business and income, then gave me personalized recommendations about whether an S Corp would actually benefit me (turns out it wouldn't until I hit a certain income threshold).

22 Just wanted to update on my experience with taxr.ai from my question above. I ended up giving it a try and was honestly impressed. The system walked me through forming my LLC in my state first, then getting my EIN, and finally filing my S Corp election. The best part was it analyzed my specific financial situation and showed me exactly when switching to S Corp status would actually save me money - turns out I needed to be making about $40k more before the tax savings would outweigh the additional compliance costs! That alone saved me from making a costly mistake. For anyone else confused about this process like I was, having everything explained in plain English with specific next steps was exactly what I needed.

12 If you're struggling to get answers from the IRS about S Corp filing (which I absolutely was), I highly recommend Claimyr (https://claimyr.com). The IRS hold times for business questions are insane right now - I spent 3 hours on hold before giving up. With Claimyr, they somehow got me connected to an actual IRS agent in under 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent answered all my specific questions about timing my S Corp election with my existing sole proprietorship and confirmed I needed to form a state entity first. Saved me from making a mistake that would have resulted in my S Corp election being rejected.

6 I need to admit I was completely wrong about Claimyr in my comment above. After struggling to get through to the IRS for THREE DAYS with no success (kept getting disconnected after 2+ hours on hold), I broke down and tried it. Got connected to an IRS business specialist in 28 minutes while I was able to keep working. The agent clarified exactly what I needed to do for my S Corp election and explained that my state's LLC formation needed to be completed first. I hate being wrong on the internet, but figured I should share this since it actually worked amazingly well. Sorry for the skepticism!

14 Just a heads-up about S Corps that nobody mentioned yet - there are ongoing compliance requirements that can get expensive! You'll need to: 1) Run payroll (even if just for yourself) 2) File quarterly payroll tax returns 3) Issue yourself a W-2 4) File a separate corporate tax return (Form 1120-S) 5) Pay yourself a "reasonable salary" I switched to S Corp status last year and while I'm saving about $4,500 in self-employment taxes, I'm spending about $1,800 extra on accounting fees and payroll services. Make sure you factor all this in!

19 One thing to consider: have you looked into forming an LLC and electing S Corp taxation status instead of forming an actual corporation? That's what I did. It gives you the liability protection of an LLC with the tax benefits of an S Corp, plus LLCs are generally easier to maintain than corporations in most states.

Great thread everyone! As someone who just went through this process myself, I wanted to add a few key points that might help other new business owners: 1) **Don't rush the S Corp election** - I almost made the mistake of filing Form 2553 too early in my excitement. You really do need to have your state entity formed first (LLC or corporation), then get your EIN for that entity type. 2) **Consider your income threshold** - Several people mentioned this but it's worth emphasizing. The general rule of thumb I've seen is that S Corp election typically makes sense when you're making at least $60,000+ annually, but it really depends on your specific situation. 3) **State taxes matter too** - Don't forget to research how your state treats S Corps! Some states don't recognize the federal S Corp election or have additional fees/taxes that could affect whether it's worth it. 4) **Keep good records from day one** - If you do elect S Corp status, the IRS is pretty strict about that "reasonable salary" requirement. Start documenting comparable salaries in your industry now so you're prepared. The advice about forming an LLC first and then electing S Corp taxation is solid - gives you more flexibility down the road if your business needs change!