How Much Does an S-Corp Election Cost in Houston? 2026 Pricing Guide

Key Takeaways

• Filing the actual S-corp election (Form 2553) with the IRS costs $0. The real money goes to forming the entity, CPA setup, and running payroll.

• Plan on $300 for a Texas LLC, $500 to $1,500 for CPA setup, and $1,500 to $3,500 a year in payroll plus the 1120-S tax return.

• Texas has no state income tax, so every dollar an S-corp saves comes from cutting the 15.3% federal self-employment tax on distributions.

• Most Houston owners hit break-even somewhere between $40,000 and $50,000 in net profit. Below that, the S-corp usually costs more than it saves.

• The 2026 election deadline is March 16 for the current tax year, but late-election relief is available if you missed it.

• Budget for the ongoing cost, not just the setup. The annual payroll and tax-prep bill is what most people underestimate.

What an S-Corp Election Actually Is (and What Starting It Costs)

An S-corp is not a type of company you form. It is a tax election you make on top of an existing LLC or corporation. You file IRS Form 2553, the IRS approves it, and your business starts being taxed under Subchapter S. That distinction matters because the election itself is free, but the structure it sits on top of is not.

So when someone asks what an S-corp election costs in Houston, they are really asking about three buckets: the cost to have a legal entity, the cost to have a CPA set the election up correctly, and the ongoing cost of running it every year. We will break down all three with real dollar figures, then show you the profit level where the math finally works in your favor.

If you are still deciding whether you even need professional help for this, our guide on when a CPA is worth it walks through the line where DIY software stops being enough.

• The election (Form 2553): $0 to file with the IRS

• The entity it sits on: an LLC or corporation you already have or need to form

• The ongoing machinery: payroll, bookkeeping, and a separate business tax return every year

The Filing Fees: Federal and Texas

Here is the good news that surprises most people. Filing Form 2553 to elect S-corp status costs nothing. The IRS does not charge a fee for the election itself.

What you do pay for is the entity underneath it. If you do not already have an LLC, the Texas Certificate of Formation is $300, filed once with the Secretary of State. That is a flat fee, not annual. If you want a registered agent service instead of using your own address, budget $0 to $150 per year, though plenty of Houston owners act as their own agent for free.

Texas also has a franchise tax, but for 2026 the no-tax-due revenue threshold sits at roughly $2.47 million. Below that, most small businesses owe nothing and, as of recent rule changes, no longer have to file a No Tax Due report at all. For the typical Houston owner electing S-corp status, the franchise tax is a non-issue.

• Form 2553 S-corp election: $0

• Texas LLC Certificate of Formation: $300 one-time

• Registered agent (optional): $0 to $150 per year

• Texas franchise tax under ~$2.47M revenue: $0 owed, no report required

CPA Setup Fees in Houston

This is where the real upfront money goes, and it is money well spent. A Houston CPA setting up your S-corp correctly typically charges $500 to $1,500. The range depends on whether they are just filing the election or building the whole foundation under it.

A lower fee usually covers preparing and filing Form 2553 and confirming your entity is eligible. A higher fee covers the full setup: choosing a defensible reasonable salary, registering for payroll tax accounts, setting up your books so distributions and wages are tracked separately, and walking you through the new compliance rhythm. Skipping that groundwork is the most common reason S-corp owners get into trouble later.

If you want to see exactly what that onboarding looks like day by day, we lay it out in your first 14 days with our firm. The setup is a process, not a single form.

• Election filing only: $500 to $750

• Full setup with payroll registration and salary analysis: $1,000 to $1,500

• What you are paying for: a structure that holds up if the IRS ever looks

Ongoing Payroll Cost: The Real Expense Nobody Mentions

The setup fee is one-time. The ongoing cost is forever, and it is the number people underestimate. An S-corp requires you to pay yourself a reasonable salary through formal payroll. That means a payroll service, payroll tax filings, and W-2 reporting every quarter and year.

A payroll service for a single owner runs $40 to $80 per month, or roughly $500 to $1,000 a year. On top of that, your business now files its own tax return, Form 1120-S, which a Houston CPA typically prepares for $1,200 to $2,500 depending on complexity. Add light bookkeeping and you are looking at $1,500 to $3,500 per year in total ongoing cost.

None of this is optional. The reasonable salary requirement is the single most enforced rule in the S-corp world, and running payroll is how you satisfy it.

• Payroll service: $500 to $1,000 per year

• Form 1120-S preparation: $1,200 to $2,500 per year

• Bookkeeping (if needed): $600 to $2,400 per year

• Realistic total ongoing cost: $1,500 to $3,500 per year

The Break-Even Analysis: When an S-Corp Pays for Itself

Here is the math that actually decides whether you should do this. An S-corp saves you money by splitting your income into a salary (which pays the 15.3% Social Security and Medicare tax) and distributions (which do not). The savings is 15.3% of whatever you take as distributions instead of salary.

Say your business nets $50,000 in profit. You pay yourself a reasonable salary of $32,000 and take $18,000 as a distribution. You save roughly 15.3% of that $18,000, or about $2,750. If your total S-corp cost that year is $2,500, you are barely ahead. Push profit to $80,000 and the savings climb past $5,000 a year, comfortably above the cost.

That is why most Houston owners hit break-even between $40,000 and $50,000 in net profit. Below that, the payroll and filing costs eat the savings. Above it, the gap widens fast in your favor.

• Under $40,000 net profit: usually costs more than it saves

• $40,000 to $50,000: the break-even zone, run the numbers carefully

• $60,000 and up: clear annual savings, often $4,000 to $10,000+

• Rule of thumb: the savings is 15.3% of the income you take as distributions

Houston and Texas-Specific Nuances

Texas changes the math in your favor compared to most states. There is no Texas personal income tax, so the S-corp savings here come purely from cutting federal self-employment tax. In a state like California, owners also fight a 1.5% S-corp franchise tax. In Houston, you skip that entirely.

The other Houston-specific point is the franchise tax threshold. Because the no-tax-due line sits around $2.47 million in revenue, nearly every small-business owner electing S-corp status owes zero franchise tax and files no report. You get the federal savings without a state-level penalty.

If you are weighing this against other ways to handle your taxes, our Houston CPA comparison breaks down local CPAs against the big chains and DIY software so you can see where an S-corp setup fits.

• No Texas personal income tax: savings come entirely from federal self-employment tax

• No state-level S-corp surtax like California's 1.5%

• Franchise tax: $0 for nearly all small businesses under the threshold

Hidden Costs People Forget to Budget

The sticker price of setup is not the whole story. A few costs sneak up on first-time S-corp owners, and forgetting them is how a good decision turns into a frustrating one.

The biggest is your own time and the discipline of running payroll on schedule. Miss a payroll tax deposit and the penalties show up quickly. There is also the cost of fixing a late or incorrect election, and the occasional need for tax resolution if a prior year was filed wrong. If you are curious how long cleanup takes when something does go sideways, our breakdown of resolution timelines by case type sets honest expectations.

• Payroll tax penalties for missed or late deposits

• State unemployment tax registration and filings

• Higher accounting fees if your books are messy at year-end

• The cost of correcting a botched or late election

Total First-Year Cost Breakdown

Pull it all together and the first-year cost of going S-corp in Houston is clearer than most online guides make it sound. If you already have an LLC, you are looking at roughly $2,000 to $4,500 in year one. If you need to form the entity too, add the $300 Texas filing fee.

Year two and beyond drops to just the ongoing cost: $1,500 to $3,500. That is the number to compare against your projected tax savings. For an owner netting $70,000 or more, the savings reliably beats the cost, often by several thousand dollars a year. For an owner under $40,000, it usually does not, and the simpler sole-proprietor path is the smarter move until profit grows.

• Year one (existing LLC): $2,000 to $4,500

• Year one (new entity): add $300 for the Texas filing

• Year two and beyond: $1,500 to $3,500 per year

• Compare that against 15.3% of your distributions to decide

Frequently Asked Questions

Is there a fee to file Form 2553?

More on this topic in How Much Does a CPA Cost in Houston? A 2026 Pricing Guide.

No. The IRS does not charge anything to file Form 2553, the form that makes the S-corp election. The election itself is completely free. What costs money is everything around it: forming an LLC or corporation if you do not already have one, paying a CPA to prepare and file the form correctly, and running the payroll and separate tax return the election requires going forward. So if a website tells you the S-corp election costs hundreds of dollars to file, they are bundling in the entity formation or their own service fee. The form goes to the IRS at no charge. The real budget question is the setup and ongoing cost, which for a Houston owner typically lands around $2,000 to $4,500 in the first year.

Do I need an LLC before electing S-corp status?

Yes, in practice. An S-corp is a tax status, not a business entity, so you need an underlying LLC or corporation to attach it to. Most Houston small-business owners form a Texas LLC first, which costs $300 through the Secretary of State, then file Form 2553 to elect S-corp taxation on top of it. You cannot elect S-corp status as a plain sole proprietor with no registered entity. The good news is the LLC fee is a one-time $300, not an annual charge, and Texas does not pile on extra state-level costs the way some states do. If you already operate as an LLC, you skip this step entirely and only pay for the election setup and ongoing compliance.

How much does a Houston CPA charge to set up an S-corp?

A Houston CPA typically charges $500 to $1,500 to set up an S-corp. The lower end usually covers preparing and filing Form 2553 and confirming your entity qualifies. The higher end covers the full foundation: determining a defensible reasonable salary, registering you for federal and state payroll tax accounts, setting up your books so wages and distributions are tracked separately, and walking you through the new compliance routine. That groundwork is what protects you if the IRS ever questions your salary, which is the most commonly enforced S-corp rule. Paying for proper setup once is far cheaper than fixing a sloppy structure later. Think of the fee as buying a clean, audit-ready foundation rather than just a single filed form.

What is a reasonable salary and why does it matter?

A reasonable salary is the wage you must pay yourself through formal payroll as an S-corp owner who works in the business. The IRS requires it because the whole tax savings comes from taking some income as distributions, which avoid the 15.3% self-employment tax. If you paid yourself nothing and took everything as distributions, you would be dodging payroll tax entirely, and the IRS knows it. Reasonable means what someone would pay an employee to do your job, based on your role, hours, and industry. Set it too low and you invite an audit and back taxes. Set it too high and you give up the savings. Getting this number right is the single most important judgment call in an S-corp, which is exactly why the CPA setup fee is worth it.

Does Texas charge state income tax on S-corp owners?

No. Texas has no personal income tax, which is one of the biggest advantages of running an S-corp in Houston versus other states. Your S-corp savings come entirely from reducing federal self-employment tax, with no state income tax clawing any of it back. There is a Texas franchise tax, but the no-tax-due threshold for 2026 sits at roughly $2.47 million in revenue. Nearly every small business stays well under that and owes zero, and recent rule changes mean you often do not even file a report. Compare that to a state like California, where S-corps pay an extra 1.5% franchise tax on profits, and Houston looks even better. The federal savings land in your pocket without a state penalty taking a slice.

What is the deadline to file the S-corp election for 2026?

To have S-corp status apply for the full 2026 tax year, you generally must file Form 2553 by March 16, 2026, which is two months and 15 days into the tax year. New entities have the same window, measured from their formation date. If you miss the deadline, you are not out of luck. The IRS offers late-election relief, and you can often still get S-corp treatment for the current year by filing Form 2553 with a reasonable-cause statement, usually within three years and 75 days of the intended effective date. A Houston CPA can handle the late election and the relief request together. The cleanest path is filing on time, but a missed deadline is a fixable problem, not a permanent one.

How much can an S-corp actually save me in Houston?

The savings equals roughly 15.3% of the income you take as distributions instead of salary. On $20,000 of distributions, that is about $3,060 a year. On $40,000, it is around $6,100. The more profit your business throws off above your reasonable salary, the larger the gap grows. For a Houston owner netting $70,000 to $100,000, annual savings of $4,000 to $10,000 are realistic after subtracting the cost of payroll and tax prep. Below about $40,000 in net profit, the ongoing costs usually eat the savings, so the election is not worth it yet. The key is that the savings is not on your whole income, only on the portion you legitimately take as distributions after paying yourself a fair wage.

What ongoing costs should I budget every year?

Plan on $1,500 to $3,500 per year to keep an S-corp running properly in Houston. That breaks into three pieces. First, payroll service to pay yourself a reasonable salary, which runs $500 to $1,000 a year. Second, preparation of Form 1120-S, the S-corp tax return, which a Houston CPA typically charges $1,200 to $2,500 for depending on complexity. Third, bookkeeping if your records are not already clean, which adds $600 to $2,400. These costs are not optional, since the salary and separate return are required by the structure itself. This ongoing number, not the one-time setup fee, is what you compare against your projected tax savings. If the savings clearly beats this range every year, the S-corp is doing its job.

Talk to a Houston CPA

Nguyen Accounting Group serves Houston small businesses with proactive tax planning, tax resolution, and bookkeeping. Book a free 30-minute consult to see if we are the right fit.

You do not have to figure this out on your own. Take a look at our strategic tax planning work to see how we would approach it, or our CFO-level advisory if you want to talk through your specific situation.