S corporation readiness worksheet

How to use this worksheet

Answer what you can from your books and last two returns. Where you have to guess, write down that it is a guess. An election decision built on an estimated profit figure is only as sound as the estimate, and the most common reason an S corporation disappoints is that the profit behind the decision was not steady or not real.

Nothing here is scored. Two owners with the same answers can reasonably reach different decisions because of things a list cannot hold: plans to sell, a spouse's job, how much administration they are willing to take on. The point is to make sure those things are on the table.

1. 1.Pull your last two federal and Massachusetts returns and year-to-date books
2. 2.Answer each section; mark guesses as guesses
3. 3.List the questions you could not answer
4. 4.Bring the worksheet to a planning conversation before the election window

Section 1: Profit

• Net profit on Schedule C for each of the last two tax years
• Year-to-date profit from reconciled books, and the month the books are reconciled through
• What you expect for the full current year, and why
• Is profit steady, seasonal or lumpy? Any one-off contracts in the figures?
• Any years with a loss, or a loss expected soon?
• Other household income: your W-2 wages, your spouse's wages, investment income

Other wages matter because Social Security tax stops at a wage base: $176,100 for 2025 and $184,500 for 2026. A household already over the base on other wages has a different comparison.

Section 2: Your role and a salary you can defend

An S corporation owner who works in the business must be paid reasonable compensation as wages before taking distributions. The IRS gives no percentage. It lists factors instead, and these questions follow them.

• What do you actually do, week to week, and how many hours?
• What would it cost to hire someone to do that work in your area?
• Does the revenue come mainly from your personal services, from employees, or from equipment and capital?
• Do you have employees who are not owners, and what are they paid?
• What salary would you propose, and what written evidence supports it?

Section 3: Payroll and administration

• Have you run payroll before, for yourself or others?
• Which payroll provider would you use, and what does it charge?
• Who would handle each payroll task: you, the provider or your accountant? Is that written down?
• Is the business co-owned by family members, or would a spouse, child or parent be on payroll? This affects Massachusetts PFML and unemployment rules.
• Are you willing to keep a basis schedule, run expense reimbursements through an accountable plan and keep wages and distributions separate?

Payroll adds Massachusetts withholding and PFML registration. PFML for 2026 is 0.88% of eligible wages, or 0.46% for employers with fewer than 25 covered individuals. The 2027 rate has not been set yet.

Section 4: Records

An S corporation's return is built from the books, not from a year-end pile of statements. If the books are not reconciled monthly today, that is the first thing to fix, election or not.

• Are the books reconciled monthly, and through which month?
• Is there a separate business bank account with no personal spending in it?
• Can you produce a balance sheet today, not only a profit and loss?
• Where are receipts kept, and could you substantiate a vehicle or home office deduction if asked?

Section 5: Massachusetts costs

Section 6: Benefits and plans

• Do you pay your own health insurance? Would the corporation pay or reimburse it?
• Are you eligible for a subsidized health plan through a spouse's employer?
• Do you contribute to a retirement plan, and would contributions be based on your salary?
• Do you expect to sell the business, bring in a partner or add owners?
• Is Massachusetts taxable income likely to approach the 4% surtax threshold: $1,083,150 for 2025 or $1,107,750 for 2026?

Section 7: Timing

The election is made on Form 2553, within 2 months and 15 days after the start of the tax year it is to take effect, or during the year before. For a calendar-year business electing for 2027, that means by 15 March 2027. Writing down the target date now avoids a decision made in a hurry in March.

If you think you meant to elect earlier and did not file, note that too. Late election relief under Rev. Proc. 2013-30 may be available within 3 years and 75 days of the intended effective date, and it changes what the conversation covers.

• Which tax year would the election start?
• Is this business already an LLC, a corporation, or neither?
• Has anything already been filed or reported as if the business were an S corporation?

What this worksheet does not do

It does not tell you whether to elect, and it does not estimate savings. Those depend on the numbers in Sections 1 to 5 together, run through the actual federal and Massachusetts rules for the year. We can run the comparison with your actual numbers, and our page on what an honest comparison must include lists every line it should show.

We prepare business and individual returns, keep books and talk through entity decisions as part of planning. We give you a scope and a price in writing before anything starts.