S-Corps - The S is for Significant Tax Savings

S-Corps - The S is for Significant Tax Savings

.

Understanding the S-Corp Advantage

By default, LLC income is fully subject to self-employment taxes, which can reach 15.3%. Electing S-Corp status allows you to divide your income into two categories:

• Reasonable Salary: Subject to payroll taxes.

• Distributions: Not subject to payroll taxes.

This strategic adjustment can reduce your tax liability while keeping you fully compliant with IRS regulations.

Who Can Elect S-Corp Status?

To qualify, your business must meet these criteria:

1. Entity Type: You must operate as an LLC or corporation.

2. Profitability: Consistent net profits of $40,000+ annually are ideal.

3. Timely Filing:

   • For new businesses: File IRS Form 2553 within 75 days of formation.

   • For existing businesses: File by March 15 to apply to the current year.

How to Make the Switch

1. Assess Profitability: Ensure your net earnings justify the election.

2. File IRS Form 2553: Submit accurately and on time.

3. Determine a Reasonable Salary: Base it on industry standards and your role.

   • Example: A consultant earning $100,000 could allocate $50,000 as salary and $50,000 as distributions.

4. Set Up Payroll: Partner with a payroll provider to ensure compliance.

How It Works Across Different Entities

• LLC Owners: Save thousands annually by reallocating income.

  • Example: A single-member LLC earning $100,000 could save $7,650 annually by designating 50% as distributions.

• Sole Proprietors: First convert to an LLC, then elect S-Corp status for long-term savings.

• Partnerships: Eligible partnerships can elect S-Corp status with unanimous agreement among partners.

• C-Corps: This strategy doesn’t apply due to their unique tax structure.

Why You Need Expert Guidance

Switching to an S-Corp isn’t just about filling out a form—it requires careful planning to maximize your savings while staying compliant. With over 35 years of tax expertise, I’ve helped countless entrepreneurs reduce their tax burdens without stepping out of line with the IRS.

Let’s work together to ensure you’re not leaving money on the table. Reach out today to get started!