If you’re a business owner tired of watching your hard-earned money disappear to taxes, it might be time to explore one of the most powerful tax-saving tools out there: the S Corporation.
At Pocket CPA, we help entrepreneurs like yourself utilize the tax code to your advantage— and the S Corp election is one of our favorite strategies. Here’s why.
What’s an S Corp?
Let’s clear this up: an S Corporation (S Corp) isn’t a business type—it’s a tax election you make with the IRS. That means your existing LLC or corporation can choose to be taxed as an S Corp by filing Form 2553 (assuming you meet the IRS requirements). And when done right, this election can unlock major tax savings.
Why S Corps Are a Tax Game-Changer
1. Slash Your Self-Employment Taxes
As a sole proprietor or a standard LLC, you may pay self-employment tax (15.3%) on every dollar of profit (if your net earnings are $400 or more in the year). Ouch! With an S Corp, you pay yourself a reasonable salary (which is subject to payroll tax), but the rest of your profit is paid out as a distribution—and that part isn’t subject to self employment tax.
Example: – Business earns $150,000 in net profit. – Owner pays themselves a $70,000 salary. – Remaining $80,000 is a distribution (no self-employment tax). – Potential tax savings: $10,000 to $12,000 annually
2. Say Goodbye to Double Taxation
Unlike a C Corporation, where your income gets taxed twice, an S Corp is a pass-through entity. Profits are only taxed once, on your personal return.
3. Boost Your Retirement & Health Benefits
With an S Corp, you can deduct: – Contributions to a solo 401(k) – Health insurance premiums for you and your family. These deductions reduce your taxable income and help build wealth.
Why S Corps Shine from a Planning Perspective
Here’s where the real magic happens—when you plan ahead with a strategic partner like Pocket CPA.
Reasonable Salary Optimization
The IRS wants you to take a “reasonable” salary—but that can be a gray area. We use IRS guidance and industry data to strike the perfect balance between compliance and savings.
Smarter Quarterly Estimates
S Corp distributions don’t have tax withheld, so quarterly planning is key. We help you stay compliant and avoid tax-time surprises in addition to interest and penalties.
Strategic Timing (Even Mid-Year!)
Didn’t elect S Corp status at the beginning of the year? You might still be able to backdate your election or apply mid-year—and still save big.
Layered Tax Deductions
From home office expenses to hiring your kids, S Corp owners have a long list of
deductions available. We make sure you don’t miss a single one.
Common Pitfalls to Watch Out For
Avoid these common mistakes: – Filing Form 2553 late – Paying yourself too little or too
much – Mixing personal and business expenses – Forgetting state-level S Corp compliance – Assuming all businesses benefit equally from S Corps
Is an S Corp Right for You?
An S Corp often makes sense when your business earns $50,000+ in net profit annually. It’s especially powerful for: – Consultants & freelancers – Realtors & investors – Coaches & online entrepreneurs – Service-based business owners If your business is growing, don’t leave money on the table.
Ready to Save More & Stress Less?
The S Corporation isn’t just a tax filing status—it’s a strategic move that can help you take home more money and reinvest in your business. At Pocket CPA, we build tax plans that work for you, not against you.
Let’s talk strategy.
Reach out to us at admin@pocketcpas.com or DM us @PocketCPA to see if an S Corp election is the right move for you.
Disclaimer:
This article is for informational purposes only and does not constitute any legal or tax advice. Consult your tax advisor before making any changes to your business structure.
