S-Corp Election for Contractors | Construction Accounting Podcast Ep. 24

Episode 24 of the Construction Accounting Podcast with George Ghazarian, CPA · 14 min 57 sec · Published 7 November 2025

If you run your construction business as an LLC and your net profit is climbing past $80,000 to $100,000, electing S-corporation status is probably the single biggest tax lever available to you. It is not a new company — it is a tax election, made on one IRS form. Here is what it does, when to file, and how to fill the form out line by line.

What an S-corp is, and why it matters

An S-corporation is not a separate type of company. It is a tax election. You are telling the IRS that you want your business profits to pass through to you, but you also want to pay yourself a salary and save on self-employment tax.

Say you are a contractor making $150,000 in net profit from your LLC. Taxed as a sole proprietor, you pay self-employment tax on all of it — roughly $21,000 in Social Security and Medicare alone.

Elect S-corp status and you can split that into a reasonable salary, say $80,000, which you pay payroll taxes on, and a distribution of $70,000, which is not subject to self-employment tax. That split is where the saving comes from.

When and how to file Form 2553

The election is made on IRS Form 2553, Election by a Small Business Corporation. Timing is the part people get wrong:

• Existing businesses — file no later than 15 March of the year you want it to take effect.
• New businesses — file within 75 days of forming the entity or starting operations.

If you have missed the deadline, there is a late election relief section on the form. More on that below.

Walking through Form 2553, line by line

Here is a run-through using a construction company as the example — “Ghazarian Construction LLC”, based in California.

Part I — Election information

• Line A — your business name, exactly as registered.
• Line B — your business address. Make sure it matches your EIN letter.
• Line C — your EIN, the number you received when you formed the LLC.
• Line D — the date incorporated or formed. For an LLC, use the formation date on your Articles of Organization.
• Line E — state of incorporation.
• Line F — check “Calendar Year” unless you have a specific reason for a different fiscal year. Most contractors stay on the calendar year.
• Line G — the effective date. Filing for 2025 means writing 01/01/2025.
• Line H — check the LLC box if applicable, noting that you are electing to be treated as an S-corporation.
• Line I — principal business activity. “Construction Services” is fine. Business code 233210 covers residential building construction.

Shareholder information

List the owners. If it is just you, that is your name, address and 100% ownership, plus your Social Security number. Sign and date it.

Part II — Fiscal year

Unless you have a good reason otherwise, check “Calendar Year”.

Part III — Late election relief

If you missed the deadline, check the box here and explain why. Keep it simple — something along the lines of: the taxpayer was unaware of the filing requirement and is requesting late election relief under Rev. Proc. 2013-30. As long as you are otherwise eligible, the IRS usually accepts it.

Part IV — Officer information and signature

Sign and date as the owner, add your title (President or Owner) and the best phone number for the IRS to reach you.

Filing, and what happens next

You can fax or mail the completed form. The address depends on where the business is located — California businesses send it to the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201, or fax it to (855) 214-7520.

Within a few weeks you should receive a CP261 notice confirming the election. Keep that letter.

The election is step one, not the finish line. Once it is approved you need to run payroll, file quarterly 941s and issue yourself a W-2. Setting the salary correctly is where most of the risk sits — too low and it invites scrutiny, too high and you give back the saving.

The short version

• An S-corp is a tax election, not a new entity
• The saving comes from splitting profit into salary plus distribution
• File by 15 March for an existing business, or within 75 days of forming a new one
• Late relief exists under Rev. Proc. 2013-30 if you missed the window
• Once elected you must run payroll and issue yourself a W-2

Related episodes

• Cost Segregation for Construction Contractors
• Improvement 1031 Exchanges: The Contractor’s Unfair Advantage

Browse the full Construction Accounting Podcast archive

This episode is general information about how these rules work, not advice for your situation. Tax law changes and the right answer depends on your entity, your income and your circumstances. Talk to a CPA before acting on it.