An S-Corp election (Form 2553) is a tax classification filed with the IRS that changes how your business income is taxed. As an S-Corp, you pay yourself a W-2 salary subject to FICA payroll taxes, and take remaining profit as a distribution that is not subject to FICA or self-employment tax. The election does not change your legal entity structure.
Why does the salary matter? With an S-Corp, you pay yourself a salary and take remaining profit as a distribution. The salary is subject to FICA payroll taxes. The remaining profit taken as a distribution avoids FICA entirely. The IRS requires this salary to be “reasonable” for your role and industry. Setting it artificially low is a common audit trigger.
Each situation is different. We will tell you whether the S-Corp makes sense for you and handle the transition if it makes sense.
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