Form your S Corporation and keep more of every dollar

An S Corporation is not a separate entity type — it is a tax election made with the IRS under Subchapter S of the Internal Revenue Code. A corporation (or LLC that checks the box) elects S Corp status by filing IRS Form 2553. Income, losses, deductions, and credits flow through to shareholders' personal tax returns, avoiding corporate-level federal income tax.

Savings depend on your net profit and the reasonable salary you pay yourself. A simple example: if your S Corp earns $150,000 net profit and you pay yourself a $70,000 salary, only the $70,000 is subject to the 15.3% payroll tax (≈ $10,710). Without S Corp status, all $150,000 would be subject to SE tax (≈ $22,950) — a saving of roughly $12,240 per year. Most business owners start seeing meaningful savings once net profit consistently exceeds $50,000.

The IRS requires S Corp owner-employees to pay themselves a reasonable salary — what you would pay a third party to do the same work. Factors include industry benchmarks, time spent, revenue generated, and your qualifications. Underpaying yourself to maximize distributions is a red flag that can trigger reclassification, back taxes, and penalties. Our payroll consultation helps you land on a defensible number.

S Corps must: (1) be a domestic corporation or LLC, (2) have no more than 100 shareholders, (3) have only US-person shareholders — no foreign individuals, corporations, or partnerships, (4) issue only one class of stock (voting differences are permitted), and (5) not be an ineligible corporation type (e.g., certain financial institutions). We check eligibility before filing Form 2553.

For a new entity, Form 2553 must be filed within 75 days of formation (or the start of the tax year you want S Corp treatment to begin). For an existing entity switching mid-year, the deadline is March 15 of the tax year you want S Corp status. The IRS does grant late election relief in many circumstances — contact us if you have missed the deadline.

Yes. An LLC can be taxed as an S Corporation without changing its legal structure. You file IRS Form 2553 (and sometimes Form 8832 first to elect corporate taxation). The LLC keeps its operating agreement and liability protection; the IRS simply taxes it under Subchapter S. This is the most common way small-business owners get S Corp treatment.

S Corps must: run payroll for owner-employees and file quarterly payroll returns (Forms 941), file an annual corporate return (Form 1120-S), issue Schedule K-1s to each shareholder, and maintain corporate formalities (annual minutes, resolutions). Our Kicker plan includes a compliance calendar, annual report filing, and alerts so nothing slips.

A C Corp pays corporate income tax at the entity level (currently 21%), and shareholders pay income tax again on dividends — double taxation. An S Corp passes income directly to shareholders with no corporate-level tax. However, S Corps have ownership restrictions (≤ 100 US-person shareholders, one class of stock) while C Corps can have unlimited foreign or corporate shareholders and multiple stock classes — making C Corps better suited for venture capital or going public.

Distributions above your reasonable salary are generally not subject to self-employment or payroll tax — that is the core tax savings. However, they are still counted as ordinary income on your personal return and subject to federal (and state) income tax. The 15.3% SE/payroll tax portion is what you eliminate on the distribution amount.

Yes. S Corp status is automatically terminated if you violate eligibility rules — for example, exceeding 100 shareholders, transferring shares to a foreign person, issuing a second class of stock, or failing to meet other requirements. Termination is often unintentional and can create unexpected tax consequences. We include eligibility monitoring in our Kicker plan.

Yes, and it is legally important. Commingling personal and business funds pierces the corporate veil and exposes you to personal liability. A separate business account also makes payroll, bookkeeping, and tax filing far simpler. Our Professional plan includes a banking resolution letter so you can open a business account immediately after formation.

State filing typically takes 1–7 business days (same-day in some states with our expedited service). The IRS typically acknowledges Form 2553 within 60–90 days and mails a CP261 determination letter confirming your S Corp status. The election itself is retroactive to your start date if filed on time.