Our dedicated team of Tax and Accounting Specialists is here to support you every step of the way as you navigate the process of electing to become an S corp. We will carefully review your information to determine which steps you’ll need to take in order to be eligible to elect. In this article, we’ll cover the essential steps needed to prepare.
Please note: Steps 1-4 are required before electing S corp status (Step 5).
Contents:
- Entity formation
- Obtain an EIN
- Update insurers and vendors
- Open a business bank account
- File for S Corp election Form 2553
Step 1: Entity formation
If you haven’t already established a legal business entity, you will need to incorporate as an LLC/PLLC or a corporation and register with your state’s business formation agency. Each state has specific requirements for registering as an LLC or a corporation, so please check your state's guidelines.
If you are forming an entity in the current tax year, then the S Corp election would not be effective prior to the incorporation date; this means you will be a sole proprietor for the first part of the year and an S Corp for the second part of the year. This is considered a mid-year election. Please reach out to support via Messages for further information on the next steps.
This process will likely require appointing a registered agent and may involve drafting articles of organization or incorporation, additional bylaws, and a list of officers or members.
Registered Agent Services
A registered agent is an individual or organization appointed to receive legal documents and important notifications for your private practice at a designated address. Alternatively, you can also incorporate using an attorney. You can file the incorporation paperwork yourself if your state allows it; however, please note that this will expose your business address, even if it is your home address.
While Heard doesn’t provide registered agent services, we've partnered with LegalZoom for entity incorporation and standalone registered agent services at a 15% discount to you. Prices range from $5 to $500, depending on state and entity type.
By using our partner link, you grant Heard access to your Legal Inc./LegalZoom account for accounting and tax purposes. Any documents retrieved will be added to your Heard account.
If you encounter any issues with your order placed through our partner link, please contact LegalInc, the LegalZoom group that handles these orders. You can reach them via:
- Email: partnersupport@legalzoom.com
- Phone: 1-877-488-0029
Step 2: Obtain an employer identification number (EIN)
Before you can elect S corp status, you’ll need a Federal Employer ID Number ( FEIN, EIN, or Tax ID). Once your business has been officially formed, you can apply for a FEIN at no cost on the IRS website. To learn more, please see What is an EIN, and why do I need one?
You do not need to apply for a new EIN for your S Corp as long as your EIN is directly correlated to your LLC/PLLC/Corporation.
Step 3: Update insurers and vendors
Keeping your insurers and vendors informed about your business entity change is important to ensure a smooth tax season. During annual tax filing, your tax preparer will use your 1099s to verify the income recorded on your books.
- Inform your insurers so they can update their records with your new LLC or corporation and the corresponding EIN.
- Update your vendors and provide them with a new W-9 form reflecting your new LLC or corporation and its respective EIN. To learn more, please see What Form W-9 is and How to Complete it
Step 4: Open a dedicated business bank account
It’s essential that your business bank account reflects your current business name and EIN. If you’ve recently formed an LLC or PLLC and obtained a new EIN, you’ll need to open a new business bank account using that EIN.
With your newly obtained EIN, take the next step by opening a bank account under the name and EIN of your LLC or Corporation.
If you don't have a business bank account yet, or you're ready to open a new one, Heard Banking, powered by i3 Bank, is the simplest way to set it up. It's built for therapists, included in every Heard plan at no extra cost, and your transactions sync to your Heard books automatically. No monthly fees, no minimums, and your Heard Visa Debit Card is included. Learn more about Heard Banking
If you'd prefer a different bank, Heard supports most major banks. Either way, use your business name and EIN when you open the account.
Please note: You do not need to open a new business bank account after electing S Corporation status.
Step 5: File Application Form 2553
Our Tax and Accounting Specialists can assist you in filing this form correctly and submitting it to the IRS. With the previous steps completed to meet the IRS requirements, you can elect for S corp status by submitting Form 2553, Election by a Small Business Corporation.
When to elect
To qualify for S corp status for the current tax year, make sure to file the necessary paperwork within two months and 15 days from the start of that tax year. If you submit your election after this period, it will take effect in the following tax year.
If you miss that deadline, you can still elect S Corp tax status for the current tax year by filing a late election.
By following these steps, you’re on your path to electing to be taxed as an S Corporation by the IRS, which can provide you with significant benefits. However, you are not considered an S Corporation until the IRS has mailed you a CP261 to approve your election.