S-Corporation (S-Corp)

An S-Corporation isn't a business entity. It's a powerful tax election for your LLC or C-Corp that can save you thousands on self-employment taxes.

The S-Corp Tax Advantage

When your business becomes profitable, S-Corp status is one of the best tools for keeping more of your money.

Save on Self-Employment Tax

This is the biggest benefit. As an S-Corp owner, you pay yourself a "reasonable salary," which is subject to FICA tax (Social Security/Medicare). Any additional profit can be taken as a "distribution," which is *not* subject to FICA tax. A standard LLC pays FICA tax on *all* profits.

Pass-Through Taxation

Just like a standard LLC, an S-Corp is a pass-through entity . The business itself pays no corporate income tax. All profits and losses are "passed through" to the owners' personal tax returns.

Added Credibility

Operating as an S-Corp (or an LLC taxed as one) signals a higher level of business maturity to investors, lenders, and partners. It shows you have a formal structure and a savvy approach to your finances.

How to Become an S-Corp

The process is straightforward. Here are the steps:

Form a Legal Entity: First, you must have an official business entity. You must form an LLC or a C-Corporation with the state.
Meet IRS Restrictions: You must ensure your business qualifies. (See restrictions below).
File IRS Form 2553: This is the crucial step. You must file IRS Form 2553 with the IRS to make the tax election. There are strict deadlines for this filing.

Our Pro and Premium packages can handle this filing for you to ensure it's done correctly and on time.

S-Corp Restrictions & Considerations

S-Corp status is powerful, but it's not for everyone. Your business must meet these IRS requirements:

Be a U.S. Company: The entity must be domestic.
Have 100 Shareholders or Less: An S-Corp cannot have more than 100 owners.
Have Eligible Shareholders: Owners must be individuals, certain trusts, or estates. They must also be U.S. citizens or residents. An S-Corp cannot be owned by other corporations, partnerships, or non-resident aliens.
Have One Class of Stock: You can't have different classes of stock with different voting rights (though differences in voting rights are allowed).

Additionally, S-Corps face stricter compliance, like needing to run payroll and file a separate tax return (Form 1120S).

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S-Corp FAQs

Common questions about the S-Corporation tax election.

The IRS requires S-Corp owners who work in the business to be paid a "reasonable salary" *before* taking tax-free distributions. This salary must be in line with what other companies would pay for similar services. You can't pay yourself $1/year and take $100,000 in distributions to avoid FICA taxes.

To be effective for the *current* tax year, you must file Form 2553 within the first two months and 15 days of the beginning of your business's tax year. For a *new* business, this means 75 days from your formation date. For an *existing* business, it's 75 days into the calendar year (around March 15). You can also file at any time for the *next* tax year.