How Much Does it Cost to Start an S Corp Business?

For many successful small business owners, operating as an S corporation is a smart strategic move. This entity offers a powerful way to save on self-employment taxes while still being shielded by limited liability protection. But before you dive in, you’re probably asking a crucial question: "How much is this actually going to cost?"

An S corp is a tax election that you apply to an underlying limited liability company (LLC) or C corporation. This means your total startup cost is a combination of:

• State formation fees

• Operational setup costs

• Ongoing compliance expenses

This guide will break down every potential cost, from one-time S corp filing fees by state to recurring annual taxes, so you can build a realistic budget as you pursue S corp status. Or you can have experts handle the process on your behalf. 1-800Accountant, America's leading virtual accounting firm, offers transparent, flat-rate pricing to help you manage these costs. We can handle the entire process—from LLC & corporation formation to payroll and tax filing—so you can stay compliant and focus on growing your new S corp.

S corp costs at a glance

An S corp is a tax status, not a business entity. This means the total cost is the sum of forming a legal entity and then maintaining S corp compliance. The formula looks like this:

S Corp Costs = State Formation + IRS Election + Payroll Setup + Annual State Taxes/Filings

Here’s a breakdown of typical outlays:

• Typical one-time outlays: Your initial costs will be the state filing fees (often $50–$520), a fee for a registered agent if you choose to use one, business licenses, and potentially some optional legal help to get set up.

• Typical ongoing costs: After you launch, you must budget for annual state reports or franchise taxes (like California's $800 minimum tax, Florida's annual report fee, or the Texas franchise tax threshold 2025), a payroll service, bookkeeping, and tax preparation for your annual IRS Form 1120-S, U.S. Income Tax Return for an S Corporation. In states like Texas, most small businesses will owe no franchise tax due to the high $2.47M threshold, but a report must still be filed.

• Your final budget will depend on your state, industry, and payroll headcount.

S Corp 101 — What You're Actually Paying For

It’s crucial to understand that you don't "form" an S corp. You first form a standard business entity—either an LLC or a C corporation—with your state. After that, you file a form with the IRS to have that entity taxed as an S corp.

The cost to file IRS Form 2553, Election by a Small Business Corporation, is $0. The IRS does not charge a fee for this election, and your Employer Identification Number (EIN), which acts like your business's Social Security Number, is also free.

The only exception is a rare case where a business requests a non-calendar fiscal year, which can trigger aletter-ruling user fee of several thousand dollars. However, the vast majority of startups will never encounter this and can elect S corp status for free.

One-Time Startup Costs (What to Budget Before Day 1)

These are the initial fees to get your business legally formed and operational.

State Formation Filing Fees

This is your first and most unavoidable cost. Each state charges a fee to officially register your LLC or corporation. These state filing fees typically range from about $50 to $520. It’s important to check your specific state’s fees, as they can differ for LLCs and corporations.

For example, here are the Florida filing & annual report fees:

• Florida Corporation: $87.50 initial filing fee.

• Florida LLC: $125 initial filing fee.

Registered Agent (If Required/Desired)

Every corporation and LLC is required to have a registered agent—a person or service designated to receive official legal and government correspondence. Many owners hire a professional service for privacy and compliance, and the typical registered agent cost is $100-$300 per year.

1-800Accountant can act as your registered agent in every state where your business operates. 

IRS Essentials: EIN and S Election

Your EIN is your business's tax ID. You can apply for a free EIN directly from the IRS. As noted, the S corp election Form 2553 cost is also free.

Licenses & Permits

Depending on your industry and location, you will likely need to obtain one or more business licenses & permits to operate legally. Costs can vary dramatically, from a simple $50 local business license to thousands for specialized permits. 

Check with your city and county for local requirements.

State-Specific Extras to Watch

Some states have unique, and sometimes costly, requirements. 

For example, if you form an LLC in New York and elect S corp status, you must comply with the state's publication requirement. This involves publishing a notice of your LLC's formation in two newspapers, which can add $600 to over $2,000 to your S corp startup costs, depending on where you'll operate in the state. 

Ongoing Costs After You Launch (Year 1 and Beyond)

Unlike other entities that are simpler to manage, an S corp is not a "set it and forget it" structure. You must budget for these recurring annual costs to maintain compliance.

State Annual Reports & Franchise/Gross-Receipts Taxes

Nearly every state requires S corps to file an annual report and pay a fee to remain in good standing. In some states, this is a flat fee, while others levy a franchise tax. Review these examples from across the country. 

• California: Imposes a $800 minimum franchise tax, plus a 1.5% tax on net income. The $800 minimum is waived for the first year.

• Texas: Most small S corps will owe no franchise tax due to the high $2.47M threshold, but a report must still be filed.

• Florida: Requires an annual report with a $150 fee for corporations and a $138.75 fee for LLCs. Missing the May 1 deadline results in a steep $400 late fee.

Payroll Setup & Processing (Because of “Reasonable Salary”)

The S corp payroll setup cost is a non-negotiable expense for owners who work in the business. The IRS requires that shareholder-employees be paid a reasonable salarybefore taking any other profits out of the business. This salary must be processed through a formal payroll system and comparable to similar positions in other businesses in your state and industry. 

A full-service payroll provider like 1-800Accountant typically charges a one-time setup fee and a recurring monthly fee. Our payroll pricing starts with a competitive $200 one-time setup fee, then $89/month for the first employee plus $39/month for each additional employee. Fees for all of our full-service accounting solutions are tax-deductible. 

Bookkeeping & the Form 1120-S Return

To maintain your S corp status and file your taxes correctly, you need accurate financial records.

Annually, your S corp must file an information return with the IRS called Form 1120-S. This form reports the company's:

• Income

• Deductions

• Profits

• Losses

From there, you issue a Schedule K-1 to each shareholder so that they can prepare and file their personal income tax returns. There is usually a cost to file 1120-S.

Licenses, Permits, and Renewals

Many of the business licenses & permits you obtained at startup will require annual renewal. These fees vary by location and activity, so be sure to track your renewal dates and budget accordingly.

Sample Budgets (Illustrative)

• Lower-cost state scenario (e.g., FL LLC electing S):

  • One-time: ~$125-$160 (LLC filing) + optional registered agent + licenses.

  • Ongoing: ~$138.75 annual report + payroll service + tax prep.

• Higher-cost state scenario (e.g., CA corp electing S):

  • One-time: State filing fee.

  • Ongoing: $800 minimum tax (year 2+) + 1.5% of income + payroll service + tax prep.

• If NY LLC elects S: Add a one-time publication cost of $600-$2,000+ in Year 1.

Ways to Reduce Costs and Avoid Penalties

• File EIN and S election directly with the IRS (free).

• In CA, there's a first-year minimum tax waiver for new S corps. Plan your cash flow for Year 2.

• Use a registered agent strategically to ensure privacy and ongoing compliance for a modest annual fee.

• Keep payroll compliant from day one to avoid back taxes and penalties; consider a full-service payroll provider to handle these complexities.

How 1-800Accountant Helps You Budget & Stay Compliant (CTA)

Trying to keep everything you need organized for your S corp formation can be overwhelming for busy business owners. During your launch window, focus on successfully introducing your business, rather than navigating state websites and searching for numerous IRS forms.

At 1-800Accountant, we offer flat-rate, never-hourly pricing designed to support S corp business owners. Our affordable, tax-deductible centralized financial solutions handle every aspect of your S corp compliance:

• Formation: We'll form your LLC or corporation, starting at $0 + state fees.

• Payroll: We set up and run your payroll each pay period to keep you compliant with reasonable compensation rules.

• Bookkeeping & Tax: We manage your books and prepare your annual Form 1120-S and personal tax returns.

With a dedicated team of experts familiar with your state and industry, you get peace of mind knowing your S corp is set up correctly and all your compliance needs are handled under one roof for maximum insights and efficiency.

Ready to get started? Schedule a free 30-minute consultation with one of our small business experts today.

FAQs

Do I Have to Form a Corporation to Be an S Corp?

No, you do not have to form a corporation before operating as an S corp. You can form an LLC or a corporation and then elect S status with Form 2553, if eligibility requirements are met.

Is There a Fee to File Form 2553?

Typically, there is no fee for the S corp election. However, a fee will apply only if you request a non-calendar fiscal year via letter ruling.

What Ongoing State Costs Should I Expect?

Your costs will be determined by your state and industry, among other factors. While you may be subject to unique costs depending on your line of work, expect to budget for annual reports/franchise, or gross receipts taxes.

What is “Reasonable Compensation”?

Reasonable compensation is connected to one of S corp's most popular features: the ability to minimize the 15.3% self-employment tax. This compensation is the W-2 wages paid to a shareholder-employee that reflect fair market pay for their role. It is required before distributions are taken.