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Last Updated: May 21, 2024


Interested in forming a Delaware S corporation but unsure where to begin? Look no further. Our guide is designed to walk you through the process of setting up an S corporation in Delaware, including an overview of the potential tax advantages.

Opting for S corp status as a limited liability company (LLC) may result in reduced self-employment taxes for its owners. Moreover, for C corporations based in Delaware, adopting an S corp structure offers a strategy to circumvent the issue of double taxation on the company’s earnings.

Requirements and Limitations of S Corporations

Before you decide on an S corporation in Delaware, you need to be aware of the S corporation filing requirements. Not every LLC or corporation will qualify. To get S corp tax status from the IRS, your business must:

  • Be a domestic corporation or LLC
  • Not be an ineligible corporation, such as an insurance company, a domestic international sales corporation, or certain financial institutions 
  • Have only one class of stock (this applies to corporations)
  • Have no more than 100 shareholders or members (“shareholders” is the term for owners of a corporation, while “members” is the term for owners of an LLC)
  • Have only allowable shareholders or members, which includes individuals, certain trusts, and estates. The shareholders/members may not be partnerships, corporations, or non-resident aliens. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.

If your business fits these requirements, keep reading to learn about forming an S corporation in Delaware.

Filing as an S Corp in Delaware

To set up a Delaware S corp, you’ll first need to create either an LLC or a C corporation if you haven’t already done so. Then, you’ll file an election form with the IRS.

If you’re ready to learn about filing as an S corporation in Delaware, we’ll walk you through it step by step. First, we’ll show you how to form an LLC in Delaware. If you’d prefer to form a Delaware corporation instead, follow the instructions on our Delaware corporation page. Then, in Step 6, we’ll explain how to file for S corp tax status as either an LLC or corporation.

Delaware S Corp Considerations

When an LLC or C corp elects to be taxed as an S corp for federal income taxes, Delaware, like most states, applies state income tax in the same way. That is, the business itself doesn’t pay federal or state income tax on the profits. The profits are usually taxed only on the personal income tax return of the individual owner or owners.

Even so, Delaware does require every S corp that derives income from within the state to file Form 1100S, S Corporation Reconciliation and Shareholders Information Return.

Start an S corp in Delaware

For some LLC owners, forming an S corp can lower what they would pay in self-employment taxes. For C corporations (the default form of corporation), it can be a way to avoid double taxation. Our “What Is an S Corporation?” page explains more about the pros and cons of S corp tax status.

If you’re thinking of setting up an S corp, Delaware may be the place to do it. The First State has a long-established reputation for being friendly to businesses, especially Delaware corporations.

S-Corp Election Steps for LLCs

For detailed formation steps, see our Delaware LLC formation guide.

  • Step 1 – Choose a name
  • Step 2 – Choose a registered agent
  • Step 3 – File your Delaware Certificate of Formation
  • Step 4 – Create an operating agreement
  • Step 5 – Apply for an EIN
  • Step 6 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

For detailed formation steps, see our Delaware Corporation formation guide.

  • Step 1 – Decide on a business name
  • Step 2 – Choose a Delaware Registered Agent
  • Step 3 – File the Delaware Certificate of Incorporation
  • Step 4 – Hold the first meeting and choose directors
  • Step 5 – Create Delaware corporate bylaws and a shareholder agreement
  • Step 6 – Issue shares of stock for your Delaware corporation
  • Step 7 – Obtain an EIN
  • Step 8 – Open a corporate bank account for your Delaware corporation
  • Step 9 – Apply for S Corp status with IRS Form 2553

File Form 2553 to Turn Business into an S Corporation

Submit the form to apply for S corporation status. Once your LLC or corporation formation is approved by the state, you’ll need to file Form 2553, Election by a Small Business Corporation, to get S corporation status. 

The IRS requires you to complete and file your Form 2553: 

  • Within 75 days of the formation of your LLC or corporation, or no more than 75 days after the beginning of the tax year in which the election is to take effect

OR

  • At any time during the tax year preceding the tax year the election is to take effect.

One additional note for LLCs wishing to file as an S corporation: If your LLC is past the 75-day election deadline, you’ll also need to file Form 8832, Entity Classification Election, to elect to be taxed as a corporation. Then you would file both Form 8832 and Form 2553 together via USPS-certified mail. 

For more information on when and how to file Form 2553, visit the IRS website.

S Corp Tax Deadline in 2025

For S corporations in Delaware, the tax filing deadline for the year 2025 is March 15. This is the date by which S corporations must file their federal tax returns, detailing the previous year’s income, deductions, and credits. 

Filing by this deadline is essential to avoid late penalties and helps ensure that shareholders can receive their Schedule K-1 forms on time to meet their personal tax filing obligations, which are due by April 15. S corporations should organize their financial documents well in advance of the deadline to comply with this requirement accurately and on time.

Delaware S Corporation Costs and Fees

When establishing an S corporation in Delaware, the initial step involves filing the necessary formation documents with the state. The standard filing fee for this is $110 for LLCs, while the fee for corporations starts at $109 and rises depending on how much stock you issue. The process typically takes about 5 weeks to complete. 

For businesses that require a faster turnaround, Delaware offers expedited filing options, which can shorten the processing time to as little as 1 hour (with fees ranging between $500 to $1,000). This flexibility allows new businesses to begin operations according to their specific timelines and needs.

Pros and Cons of Filing as a Delaware S Corporation

While an S corporation classification does come with benefits for some businesses, making this election might not be right for everyone. Be sure to carefully weigh the various pros and cons before deciding how you want to proceed.

Advantages for LLCs with S Corporation Status

The benefits of filing as an S corporation for an LLC differ from the benefits for a C corporation. Let’s look at the advantages for LLCs first. A traditional LLC already has pass-through taxation, so the benefits of S corp election for an LLC have to do with self-employment taxes.

The members of a standard LLC are considered self-employed. They’re compensated by receiving their share of profits from the LLC, but they aren’t allowed to be employed by the LLC. Being self-employed means paying self-employment taxes (the taxes that go toward Social Security and Medicare, which add up to about 15.3%) on all profits they receive from the LLC. This is more than the taxes they’d pay when working for someone else because their employer would pay part of them.

But electing S corporation status allows the members to be compensated in two ways, by receiving their share of the profits and by being paid as an employee. Once they do that, they only pay Social Security and Medicare taxes on their salary and not the profits they receive.

Depending on factors such as how profitable your company is, the savings could add up to a lot. (To be clear, the members will still pay income and all other applicable taxes on their share of the profits.) 

Reasonable Compensation

One caveat to this arrangement is that the IRS expects you to pay yourself a “reasonable salary” as an employee of the LLC. Otherwise, you could pay yourself an annual salary of $2 and contribute almost nothing to Social Security and Medicare. 

So, what’s considered “reasonable compensation?” The instructions on Form 1120-S read, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” Essentially, the IRS considers “reasonable” to be something similar to what others in your field are earning for the same job.

If the IRS decides that your salary isn’t reasonable, it has the authority to reclassify your non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases have supported the IRS’s right to do this.

Advantages of S Corp Status for Delaware C Corporations

If you have a C corporation (the default form of corporation), filing as an S corp has the following benefits:

  • Pass-Through Taxation: C corporations usually fall prey to double taxation, when the business profits are taxed on the corporate level and again when the shareholders pay income tax on their share. But S corp status bypasses the corporate income tax.
  • Writing Off Losses: Unlike C corporation shareholders, S corp owners can write off the company’s losses on their personal income statements. 
  • Qualified Business Income Deduction: Under the Tax Cuts and Jobs Act of 2017, some S corp owners may be able to deduct up to 20% of their qualified business income. This deduction isn’t available to C corporation shareholders.

We need to add here that, since the 2017 Tax Cuts and Jobs Act, the corporate tax rate has been lowered to a flat 21%. So, the disadvantages of double taxation aren’t as severe now as they were. If in doubt, talk with a tax professional for more personalized guidance.

Disadvantages for LLCs with S Corporation Status

Owning an LLC with S corporation status can also have some drawbacks over a traditional LLC:

  • More Filing Requirements: S corporations have more regulations than a standard LLC, as its members can’t exceed 100, and members can’t be partnerships, corporations, or non-resident aliens.
  • More IRS Scrutiny: The IRS monitors S corps more closely to ensure that you’re paying yourself a reasonable salary. There’s a higher chance of being audited as an S corp.
  • Additional Accounting and Bookkeeping: If you don’t already have to do payroll for your business, being an owner-employee of an S corp means that you’ll have to do so. Your taxes will be more complicated, too. This might incur higher administrative costs, too.

Disadvantages of S Corp Status for C Corporations

S corporation status also has its pitfalls for Delaware corporations:

  • Limited Number of Shareholders: An S corp can’t have more than 100 shareholders, which might make it harder to expand significantly.
  • Limited Types of Shareholders: C corporations have more opportunities to expand internationally than S corps, which can only have U.S. citizens, certain trusts, or estates as shareholders.
  • One Class of Stock: Corporations sometimes use preferred stock to attract investors, but the IRS doesn’t allow this for S corps.
  • Closer IRS Scrutiny: Because of the restrictions S corps have, the IRS watches them more closely to see if they’re in compliance.

We want to stress again how important it is to have tax guidance about your specific situation from a qualified tax professional. An accountant with S corp experience should be able to make sure you stay in compliance with the IRS, and they also may be able to help you find additional tax savings.

Differences: Delaware S Corp vs C Corp, S Corp vs LLC

In Delaware, understanding the distinctions between an S corp, a C corp, and an LLC is crucial for entrepreneurs deciding on the best structure for their business. S corp status is a tax classification that can be elected by both LLCs and corporations to take advantage of certain tax benefits.

Delaware S Corp vs C Corp

A C corporation (C corp) is a legal entity that is separate from its owners — meaning the corporation itself is liable for its actions and debts, thereby protecting the personal assets of its shareholders. C corps are taxed on their profits, and when these profits are distributed to shareholders as dividends, they are taxed again at the shareholders’ personal tax rates, a situation known as double taxation. C corps file their federal tax returns using IRS Form 1120.

In contrast, an S corporation (S corp) is a designation that can be elected to avoid this double taxation. The profits and losses of an S corp pass through directly to the shareholders’ personal tax returns, similar to the structure of a sole proprietorship or partnership, thus only being taxed at the individual level. This pass-through taxation can offer significant tax savings and is available for LLCs or traditional corporations that meet the IRS requirements for S corp status.

Delaware S Corp vs LLC

A limited liability company (LLC) in Delaware provides liability protection to its owners (known as members), similar to a corporation. An LLC is inherently flexible, particularly in terms of management and tax structure. LLCs in Delaware can be managed by one or more managers or directly by the members, offering significant operational flexibility. Furthermore, an LLC is a pass-through entity for tax purposes by default, meaning it does not pay taxes at the company level. Profits and losses are reported on the personal tax returns of the members.

Forming an LLC in Delaware offers the benefits of limited liability protection, where owners are typically not personally responsible for business debts and liabilities. Additionally, LLCs enjoy flexible taxation options, where they can choose to be taxed as a partnership, sole proprietorship, or even as a corporation if it better suits their financial goals. This flexibility makes LLCs a popular choice for many business owners who seek both protection and simplicity in their business operations.

Adding an S corp designation to an LLC actually maintains the above benefits. But as an added perk, the S corp can pay its members like owner-employees, potentially giving a tax break on self-employment taxes for its members.

Get help establishing a Delaware LLC with S corp tax election

Forming a business can be complicated, but we’re here to make it as easy for you as possible.

If you want to form an LLC with S corp status, our S corp service can help you do just that. Plus, we offer other services to help you run and grow your business and stay in compliance with state and federal laws.

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Delaware S Corporation FAQs

  • First, know that an S corporation is not a business structure or separate legal entity. It’s a tax classification that either an LLC or a corporation can apply for with the Internal Revenue Service (IRS), provided it meets the requirements. We’ll outline those criteria and the steps you would need to take to file as an S corporation if you decide that it’s right for your business.

  • For a corporation, the biggest tax advantages are being able to avoid double taxation. Typically, a C corporation’s profits are taxed at both the business and individual shareholder level, while an S corp’s profits are taxed only on the individual level when the shareholders pay personal income tax on their dividends. 

    For an LLC, when the members elect S corporation status, they can be compensated in two ways, by receiving their share of the profits and by being paid as an employee. Once they do that, they only pay employment taxes (Social Security and Medicare) on their salary and not the profits they receive. For some LLCs, this can add up to substantial tax savings.

  • The naming process for your LLC or corporation isn’t affected by your S corporation status. Before formally registering a business name, search the Delaware business entity records to make sure that you don’t select one that’s already in use by another business. That aside, however, you can typically name your Delaware company nearly anything you want as long as you comply with any applicable state naming regulations.

  • S corp status may not be right for all businesses. If you’re not sure whether to identify your LLC as an S corp or keep the default status, be sure to consult with an experienced business law attorney or accountant in Delaware.

  • Calculating taxes can be challenging, but you can check out our S corp tax guide to learn more about navigating taxes for your Delaware S corp. A certified tax professional can give you more definitive information for your circumstances.

  • Calculating taxes can be challenging, but you can check out our S corp tax guide to learn more about navigating taxes for your Delaware S corp. A certified tax professional can give you more definitive information for your circumstances.

  • No, our S corp service is only for applying for S corp status when you form your LLC with us.

  • According to the IRS website, you’ll be notified of whether or not your S corp election is accepted within 60 days of filing Form 2553.

  • If you’re a new LLC, you must apply for S corp status within 75 days of the formation or no more than 75 days after the beginning of the tax year in which the election is to take effect. For an existing business, you would file at any time during the tax year preceding the tax year it is to take effect.

  • An LLC is a legal business entity, but an S corp is a tax filing status. You can read more on our LLC vs. S corp page.

  • Yes, provided it meets the IRS’s requirements for becoming an S corporation.

  • When an LLC or C corp elects to be taxed as an S corporation for federal income taxes, Delaware, like most states, applies state income tax in the same way. That is, the business itself doesn’t pay federal or state income tax on the profits. The profits are usually taxed only on the personal income tax return of the individual owner or owners. However, Delaware does require every S corporation that derives income from within the state to file Form 1100S, S Corporation Reconciliation and Shareholders Information Return.

  • Generally, S corporations do not receive 1099 forms because they are still categorized as corporations, which are typically exempt from receiving these forms for services rendered. However, there are exceptions, such as payments made for legal services. It’s important for S corporations to consult with a tax professional to understand specific circumstances under which they might need to receive or issue 1099 forms, helping ensure full compliance with IRS reporting requirements.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

File Your Delaware S Corporation