In this episode, Katelyn explains what an S corp election actually changes, how it works alongside an existing LLC or corporation and why the potential savings come from self-employment taxes rather than income taxes.

She breaks down the financial thresholds where an S election may begin to make sense, why business owners need to look at profit instead of revenue and how administrative expenses such as payroll services and additional tax filings affect the decision.

Finally, Katelyn outlines the process of starting payroll as an S corp owner, including applying for the election, setting a pay schedule, registering for state payroll accounts and using Gusto to manage payroll taxes and direct deposits.

Key Takeaways

• An S corp election is a tax election, not a separate business entity.
• Your LLC or corporation remains the same legal entity after making the election.
• An S corp owner receives both a reasonable salary and distributions from the remaining business profit.
• Business owners should evaluate profit rather than revenue when deciding whether an S election makes financial sense.
• Paying yourself an artificially low salary can lead to IRS scrutiny, back payroll taxes, penalties and additional filings.
• Business owners should work with a qualified professional when preparing Form 2553, particularly when multiple owners or spouses are involved.

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Music credit: Neon Fairies by Wolves