The 11 things to do in year one
Roughly in order. Items 1–4 are urgent; the rest can follow over your first few months.
Save your IRS acceptance letter (CP261)
The IRS mails it after approving Form 2553. It's your proof of S status — banks, CPAs, and state agencies will ask for it. If it hasn't arrived within about 60 days of filing, follow up with the IRS.
Set up payroll before taking money out
Shareholder-employees must take reasonable W-2 wages before distributions. This is the #1 first-year mistake and a known audit trigger. A payroll service handles the withholding, filings, and year-end W-2 for you.
Settle on a reasonable salary with your CPA
There's no official number — it depends on your role, hours, and market rates for the work. Document how you arrived at it.
Put every deadline on a calendar now
A typical California S corp faces 26 deadlines a year across the IRS, FTB, Secretary of State, and your own bylaws. See the full 2026 calendar for dates.
Separate business finances completely
Dedicated bank account, dedicated card. Commingling funds is the fastest way to undermine the liability protection you incorporated for.
Collect W-9s from contractors as you hire them
Anyone you'll pay $600+ needs to give you a W-9. Collect it before their first payment — chasing signatures in January to file 1099-NECs is miserable.
Know your California franchise tax situation
The $800 minimum is waived for a qualifying newly formed corporation's first taxable year — then it's due every April 15 with your first estimated installment, profitable or not. Details in the California deadlines guide.
Start quarterly estimated taxes
Profits pass through to your personal return with no withholding, so you'll likely owe personal estimates (1040-ES federally; 540-ES in California on a 30/40/0/30 weighting). Your corporation may owe Form 100-ES estimates too.
File your initial Statement of Information
In California: within 90 days of registering, then annually by the end of your anniversary month. $25 on Form SI-550 — small filing, real penalties if forgotten.
Hold your first shareholder meeting and keep minutes
Even a single-owner S corp should document annual meetings and major decisions. It's tedious exactly once a year, and it matters if your corporate status is ever challenged.
Set up bookkeeping and line up a CPA before March
Your first 1120-S and K-1 arrive faster than you think. CPAs get booked solid by February — establish the relationship in the fall, not the spring.
The mistake that costs the most
Filing the first 1120-S late. New owners assume business returns are due in April with everything else. They're due a month earlier — March 15 (March 16 in 2026) — and the penalty is $255 per shareholder per month, even if you owe nothing. If you're not ready, a free Form 7004 extension takes minutes and eliminates the penalty entirely.
Frequently asked questions
I just elected S corp — what should I do first?
Save the CP261 acceptance letter, set up payroll, and calendar your deadlines. Everything else builds on those three.
Do I really have to pay myself a salary?
If you work in the business and take money out, yes — reasonable W-2 compensation before distributions. No fixed number exists; document your reasoning and confirm with a CPA.
When is my first Form 1120-S due?
The 15th day of the third month after your first tax year ends — March 15/16 for calendar-year corps, even for a short first year. Extendable to September 15 via Form 7004.
Is the $800 California franchise tax waived my first year?
For a qualifying newly formed corporation's first taxable year, yes. Every year after, it's due April 15. An existing business that merely elected S status doesn't restart the clock.
When do estimated taxes start?
Immediately — there's no withholding on pass-through profits. Federal 1040-ES quarterly; California 540-ES weighted 30/40/0/30 with no September payment.
When is the initial Statement of Information due?
Within 90 days of registering with the California Secretary of State, then annually in your anniversary month.