Forming an S corporation in Illinois is a two-step process. First, you create a business entity (either an LLC or a corporation) with the Illinois Secretary of State. Then you elect S corporation tax status with the IRS by filing Form 2553. The S-corp designation itself is a federal tax election, not an entity type, so the state formation has to happen before the tax election can take effect.1Illinois Department of Revenue. How to Register Your Illinois Business
Step 1: Form an LLC or Corporation in Illinois
An S corporation is a tax status layered on top of an existing business entity. You need to pick which entity to form first.
A corporation runs on a more rigid structure: a board of directors, officers, bylaws, and issued shares of stock. An LLC is more flexible, governed by an operating agreement the members draft themselves, with fewer formalities around meetings and record-keeping. Either can elect S-corp status, and the IRS treats an electing LLC as a corporation for tax purposes. Most single-owner and small-group businesses that want S-corp taxation choose the LLC route. Businesses planning to bring in outside investors or go public usually start as corporations.
Pick a Name
Your name must be distinguishable from any entity already registered in Illinois. Use the Secretary of State’s business entity search to check availability.2Illinois Secretary of State. Business Search / Certificate of Good Standing If the name is open, you can reserve it with form BCA-4.10 (corporations) or LLC-1.15 (LLCs) for a $25 fee. Reservation is optional and buys time if you’re not ready to file formation documents.
The state search only covers Illinois registrations. It will not surface federal trademark conflicts, so run the name through the U.S. Patent and Trademark Office’s trademark database before committing to it.3United States Patent and Trademark Office. Search Our Trademark Database
Designate a Registered Agent
Every Illinois entity must have a registered agent with a physical street address in the state. The agent can be an individual living in Illinois or a business entity authorized to operate here, and they accept legal documents and official correspondence during normal business hours.4Justia. Illinois Code 805 ILCS 5 – Business Corporation Act of 1983 You can serve as your own agent. Many owners hire a commercial agent service to keep their home address off the public record.
File Formation Documents
LLCs file Articles of Organization; corporations file Articles of Incorporation. Both can be submitted online or by mail to the Secretary of State. The LLC filing fee is $150, and so is the corporation fee.5Illinois Secretary of State. Limited Liability Company Publications and Forms6Illinois Secretary of State. Domestic and Foreign Corporations Publications and Forms Articles of Incorporation also require the number and class of authorized shares. Corporations may owe an additional initial franchise tax tied to authorized capital, though Illinois is phasing that tax out, with full repeal scheduled for 2027.
Get an EIN and Draft Internal Documents
Once the Secretary of State confirms your entity exists, apply for an Employer Identification Number from the IRS. It’s free and available online at irs.gov. You’ll need the EIN to file Form 2553 and to open a business bank account.
Draft internal governing documents even though you don’t file them with the state. For an LLC, that’s an operating agreement; for a corporation, bylaws. These spell out ownership percentages, voting rights, distribution rules, and how major decisions get made. Skip them and you fall back on default state rules that may not match what you actually agreed to with your co-owners.
Step 2: File IRS Form 2553 to Elect S-Corp Status
The S-corp election itself is federal. You make it by filing IRS Form 2553, “Election by a Small Business Corporation.”7Internal Revenue Service. About Form 2553, Election by a Small Business Corporation All shareholders must sign. The form asks for the entity’s name, EIN, date of incorporation or formation, the tax year, and the date you want the election to take effect.
Who Qualifies
To elect S-corp status, the entity must be:
- Organized in the United States.
- Capped at 100 shareholders. Members of the same family can count as one shareholder.
- Limited to one class of stock. Voting rights can differ, but all shares must have the same rights to distributions and liquidation proceeds.
- Owned only by eligible shareholders: U.S. individuals, certain trusts (such as grantor trusts and qualified subchapter S trusts), certain estates, or tax-exempt organizations described in section 401(a) or 501(c)(3). Partnerships, corporations, and nonresident aliens cannot hold shares.
Violating any of these conditions after the election can terminate S-corp status automatically.8Internal Revenue Service. Instructions for Form 2553
When to File
Form 2553 is due no later than two months and 15 days after the start of the tax year you want the election to cover, or any time during the preceding tax year. For a calendar-year business, that’s March 15.8Internal Revenue Service. Instructions for Form 2553 A brand-new entity can file during its first two months and 15 days of existence and have the election apply from day one.
The IRS generally sends an acceptance or denial letter within 60 days. If you haven’t heard anything after two months, call 1-800-829-4933 to follow up.9Internal Revenue Service. Instructions for Form 2553
If You Missed the Deadline
A missed March 15 deadline doesn’t necessarily mean waiting until next year. Revenue Procedure 2013-30 lets businesses that intended to elect S-corp status file a late Form 2553 with simplified relief.10Internal Revenue Service. Revenue Procedure 2013-30 You generally need reasonable cause for the delay, and the entity must have operated as though the election were in place (filing S-corp returns, issuing K-1s). All shareholders must also have reported their income consistently with S-corp treatment for the year. If you qualify, write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of the form. It’s not guaranteed, but it works in most cases where a missed deadline was the only problem.
Pay Yourself a Reasonable Salary
This is where new S-corp owners most often get into trouble. If you actively work in the business, you are a corporate officer and must pay yourself a reasonable salary before taking distributions.11Internal Revenue Service. Wage Compensation for S Corporation Officers That salary is subject to payroll taxes: Social Security at 6.2% on wages up to $184,500 in 2026, and Medicare at 1.45% on all wages, with matching amounts paid by the S-corp as the employer.12Internal Revenue Service. Social Security and Medicare Withholding Rates Distributions above that salary avoid payroll taxes, which is the main tax advantage of the structure.
The IRS does not set a specific dollar figure. Courts look at the shareholder-employee’s training and experience, duties and responsibilities, time devoted to the business, what comparable businesses pay for similar work, and the company’s dividend history.11Internal Revenue Service. Wage Compensation for S Corporation Officers Setting the salary artificially low to dodge payroll tax is the fastest way to attract IRS scrutiny. If the agency finds a salary unreasonably low, it reclassifies distributions as wages and you owe back payroll taxes plus penalties and interest.
Once you set a salary, you have to run actual payroll: withhold federal and state income taxes, Social Security, and Medicare from each paycheck; file quarterly payroll returns (Form 941); and issue a W-2 at year-end. Most S-corp owners use a payroll service.
Illinois Tax Obligations
Illinois S corporations don’t pay the state’s corporate income tax at the entity level, but they aren’t tax-free either.13Illinois Department of Revenue. What Is the Tax Rate for Businesses, Trusts, and Estates?
Personal Property Replacement Tax
Every Illinois S corporation owes a 1.5% replacement tax on net Illinois income.14Illinois Department of Revenue. Personal Property Replacement Tax You report and pay it on Form IL-1120-ST, due on the 15th day of the third month after your tax year ends. For calendar-year filers, that’s March 15. Illinois grants an automatic seven-month filing extension, but any tax owed is still due by March 15 to avoid penalties.15Illinois Department of Revenue. IL-1120-ST Instructions
Shareholder Income Tax
Income passes through to shareholders, who report their share on personal Illinois returns at the state’s 4.95% individual income tax rate.16Illinois Department of Revenue. Income Tax Rates
Estimated Payments
S corporations that elect to pay the pass-through entity (PTE) tax and expect a liability over $500 must make quarterly estimated payments. They’re due April 15, June 15, September 15, and December 15.15Illinois Department of Revenue. IL-1120-ST Instructions S corporations that don’t make the PTE election aren’t required to pay estimated tax at the entity level, but individual shareholders may still owe federal estimated taxes if personal liability will top $1,000 for the year.17Illinois Department of Revenue. Pub-105, Estimated Payments Requirements Illinois late estimated payment penalties run 2% of the tax due if paid within 30 days, 10% if paid later.
Federal Form 1120-S
Every S corporation files Form 1120-S each year to report income, deductions, and credits at the entity level.18Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation Calendar-year businesses file by March 15.19Internal Revenue Service. Publication 509 (2026), Tax Calendars Form 7004 buys a six-month extension to September 15, but tax owed is still due March 15.
The S corporation itself pays no federal income tax on this return. Each shareholder receives a Schedule K-1 showing their share of income, losses, deductions, and credits, which they report on Form 1040. Because that income is taxed to shareholders whether or not the S-corp actually distributes cash, you can owe tax on money you haven’t received. A distribution schedule that accounts for shareholder tax liability keeps nobody short in April.
Annual Report
Illinois requires every LLC and corporation to file an annual report with the Secretary of State. Corporations file before the first day of the anniversary month of incorporation. LLCs file by the 15th day of the anniversary month of formation. The fee is $75 for LLCs and $75 for corporations, with a possible additional franchise tax for corporations based on paid-in capital (again, scheduled for full repeal in 2027).5Illinois Secretary of State. Limited Liability Company Publications and Forms
Miss the deadline and the Secretary of State can administratively dissolve or revoke your entity, meaning the state treats it as if it no longer exists. Reinstatement runs $200 plus back fees, and during the gap you lose the liability protection the entity provides. Set a calendar reminder well before the anniversary date.
Revoking the Election Later
If the S-corp structure stops making sense, you can revoke it. Shareholders holding more than half of the shares must consent.20Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination A revocation filed on or before the 15th day of the third month of the tax year (March 15 for calendar-year filers) takes effect January 1 of that year. Filed later, it waits until January 1 of the following year unless the revocation statement specifies a later date.
Once revoked, the business generally cannot re-elect S-corp status for five tax years without IRS consent. Revocation converts the entity to C corporation taxation, so the business itself pays federal income tax and distributions can be taxed again as dividends. The math turns on income level, distribution patterns, and growth plans, so talk with a tax professional before filing.