Starting an S corporation costs $150 to $800 if you handle the setup yourself, $800 to $2,000 with CPA help, or $1,500 to $5,000 or more with an attorney.
The IRS charges no fee for Form 2553, the form used to elect S corporation tax treatment. An EIN is also free when you obtain it directly from the IRS. Most costs come from forming the underlying LLC or corporation, meeting state requirements, setting up payroll and preparing annual tax returns. The California tax example in this article uses the Franchise Tax Board's 2025 booklet.
S Corporation Startup Costs at a Glance
| Expense | Typical cost |
|---|---|
| State LLC or corporation formation | $50 to $500 or more |
| EIN from the IRS | Free |
| S corporation election, Form 2553 | Free |
| Registered agent | $0 to $300 per year |
| Operating agreement or corporate bylaws | $0 to $500 |
| Business licenses and permits | Varies |
| Payroll setup | $0 to $300 |
| CPA or tax professional | $150 to $500 for an initial consultation |
| Online filing service | $50 to $500 or more |
| Attorney | $500 to $3,000 or more |
Your actual cost depends on your state, business structure, industry and the amount of professional help you need. These are planning ranges, not universal fees.
Is an S Corporation a Separate Business Entity?
No. An S corporation is a federal tax election, not a business entity that you register directly with your state.
The usual process is:
- Form an LLC or corporation with your state.
- Obtain an EIN from the IRS.
- Prepare an operating agreement or corporate bylaws.
- File IRS Form 2553 to elect S corporation taxation.
- Set up payroll if you work for the business.
- Complete annual federal and state filings.
An LLC can elect S corporation taxation if it meets the IRS requirements. The business generally must be a domestic entity with no more than 100 shareholders, allowable shareholders and only one class of stock.
How Much Does It Cost to Form the LLC or Corporation?
The state formation filing is usually the largest required startup expense.
The U.S. Small Business Administration says state registration costs are generally under $300, although fees vary by state, entity type and filing requirements. A broader planning range is $50 to $500 or more.
You may also need to pay for:
- An initial report or annual report
- A registered agent
- A local business license
- A professional license
- A sales tax permit
- A home occupation permit
- State franchise taxes or minimum business taxes
Forming the business in another state does not always lower your total cost. If you operate in your home state, you may still have to register there as a foreign business and pay additional fees.
How Much Does the S Corporation Election Cost?
The federal S corporation election is free.
You make the election by filing IRS Form 2553, Election by a Small Business Corporation. The form generally must be filed no later than two months and 15 days after the beginning of the tax year for which the election should apply. You can also file during the preceding tax year.
Some late elections qualify for IRS relief. Missing the deadline can still create extra paperwork and professional fees.
How Much Does an EIN Cost?
An EIN costs nothing when you apply directly through the IRS.
Eligible businesses can apply online, and the IRS often issues the number immediately. A formation company may charge to submit the application, but that fee covers its service. The EIN itself remains free.
How Much Does Professional S Corp Setup Cost?
Your professional fees depend on whether you use an online service, CPA or attorney.
| Setup method | Typical first-year setup cost |
|---|---|
| Do it yourself | $150 to $800 |
| Online formation service | $300 to $1,200 |
| CPA-assisted setup | $800 to $2,000 |
| Attorney-assisted setup | $1,500 to $5,000 or more |
These estimates may cover formation fees, basic organizational documents and professional assistance. They may not include payroll, bookkeeping, annual reports, state taxes or the S corporation tax return.
For a single-owner business with a simple structure, DIY formation plus a CPA consultation can provide guidance without the cost of a full legal package. Multiple owners, investors, intellectual property, regulated activities or an existing business conversion are good reasons to consult an attorney.
What Are the Ongoing Annual Costs of an S Corporation?
An S corporation usually has recurring costs for payroll, tax preparation and state compliance.
| Ongoing expense | Typical annual cost |
|---|---|
| Payroll software | $300 to $1,200 |
| CPA or S corporation tax preparation | $500 to $2,000 or more |
| Bookkeeping software or services | $0 to $3,000 or more |
| Registered agent | $100 to $300 |
| Annual report | $25 to $500 or more |
| State franchise or minimum taxes | Varies by state |
| Business license renewals | Varies |
A business with employees, several shareholders, inventory or activity in multiple states will usually cost more to maintain.
State taxes can change the total substantially. For example, the California Franchise Tax Board states that an LLC organized, registered or doing business in California generally owes an $800 annual tax, subject to applicable rules and exceptions.
Does an S Corporation Require Payroll?
Usually, yes, if you actively work in the business.
The IRS generally requires an S corporation to pay a shareholder-employee reasonable compensation before making non-wage distributions. Payroll may involve wage withholding, employer payroll taxes, payroll tax returns, W-2 forms and payroll records.
Paying yourself only through distributions can create tax problems if the IRS determines that you should have received wages. Payroll is therefore one of the recurring costs to include in your budget.
Does an S Corporation Require a Separate Tax Return?
Yes. An S corporation generally files Form 1120-S, U.S. Income Tax Return for an S Corporation.
The business also issues Schedule K-1 information to its shareholders. Each shareholder reports their share of the business income on their personal tax return.
A tax professional may charge about $500 to $2,000 or more for a straightforward S corporation return. Fees can increase when the business has multiple shareholders, bookkeeping problems, state returns or complex transactions.
What Should You Budget for Your First Year?
For a simple one-owner business, use these planning ranges:
- DIY setup: $150 to $800 before significant payroll and tax preparation costs
- DIY formation with CPA guidance: $800 to $2,000
- Professional setup with payroll and tax support: $1,500 to $5,000 or more
- Complex business or attorney-led formation: $5,000 or more
The filing fee is only one part of the budget. Include payroll, bookkeeping, tax preparation, annual reports, business licenses and state taxes when comparing an S corporation with a sole proprietorship or standard LLC.
Is Starting an S Corporation Worth the Cost?
An S corporation may be worthwhile when the expected tax savings exceed the added costs of payroll, tax preparation, bookkeeping and state compliance.
It is less attractive when business profit is low, inconsistent or barely large enough to cover the added accounting and payroll work. The federal election is free, but maintaining the structure is not.
Use this calculation:
Potential S corporation tax savings - payroll, tax preparation, bookkeeping and state compliance costs = estimated net benefit
Do not choose S corporation status based only on the free Form 2553 filing. Compare the expected tax savings with the recurring cost of running the business.