When Should You Consider the S Corp Election?

The S Corp election is definitely a trending topic when it comes to tax savings strategies, and it's earned it's spot up there. Business owners save thousands just by filling out a small form saying they want their profits to be immune from self-employment tax. The benefits are great, but this choice does come at a cost.

In order to be compliant and take advantage of S Corp taxation, you need to check a few boxes first. The S Corp isn't for everyone and requires you to file a whole separate business tax return. The benefits do often outweigh the costs, though.

Here are three signs you’re ready:⁣

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(1) Your profit - The S election starts getting you some real finance savings once you have over ~$30K in profit. ⁣

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(2) Your books - If you are inconsistent or messy with your books, having an S Corp will just make it more complicated. You want to make sure you are keeping personal and business separated and have a bookkeeping system. ⁣

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(3) Payroll - One of the requirements to take advantage of the S election is to run payroll for owner’s compensation. The owner-employee must pay themselves a reasonable salary before taking any distributions. You will need to enroll in a payroll service, file quarterly returns and sign up for worker’s compensation, even if it is just you. ⁣

If you think you meet these, chat with your accountant to see if this is a good option for you. Share this with a fellow business owner!