How Electing S-Corp Status Can Save You Thousands

Let’s talk about something that makes small business owners groan: taxes. Specifically, self-employment taxes and how electing S-corp status can save you thousands during tax time.

If you’re running your business as a sole proprietorship or single-member LLC, there’s a good chance you’re tipping the IRS 15.3% every year without even realizing it. And while tipping your barista is great… tipping Uncle Sam unnecessarily? Not so much.

💸 The Joke (That’s Actually Real Life)

“If your business is still taxed as a sole prop or regular LLC, you’re basically tipping the IRS 15.3% every year.”

And it’s true. All of your net income as a sole proprietor is hit with the full 15.3% self-employment tax — that’s Social Security and Medicare. That means if your business nets $100,000, you’re paying $15,300 in just employment taxes — and that’s before income tax even kicks in.

🤔 So What’s the S-Corp Hack?

Enter the S-corporation election (a.k.a. IRS Form 2553). When you elect to have your LLC taxed as an S-Corp:

You start paying yourself a reasonable salary (which is subject to payroll taxes).
The remaining profit gets taken as distributions, which are not subject to self-employment tax.

💥 Real-World Example:

Let’s say your business nets $100,000.

As a Sole Proprietor/LLC:

Entire $100,000 is subject to 15.3% SE tax
That’s $15,300 in self-employment tax

As an S-Corp:

Pay yourself $60,000 salary → taxed at 15.3% = $9,180
Take remaining $40,000 as a distribution → $0 SE tax

Boom. You just saved $6,120.
(Insert confetti here.)

We said electing S-corp status can save you thousands and we meant just that.

📈 Is This Legal?

Absolutely. The IRS allows this setup as long as you pay yourself a “reasonable salary” for the work you do. Try to pay yourself $10,000 on a $200,000 profit and, well… you might hear from your not-so-favorite uncle.

💡 Is It Right for Everyone?

Not always. Here are a few things to consider:

✅ You’re earning at least $50K–$60K net from your business
✅ You’re okay with some extra paperwork and payroll requirements
✅ You have (or want) an accountant or bookkeeper to help manage it

If your business is still small or just getting started, it might not be worth it yet — but it’s worth planning for.

Because giving the IRS a fat bonus?
Yeah… not anymore.

Let’s Talk.
Reach out so Easy Books TX can help you keep more of your hard earned dollars.

Consult your trusted CPA before putting this advice into action to be sure its right for your business and situation.