Accounting Videos for Small Business Owners | Financial Tips & Strategies

The Hidden Cost of Staying a Sole Proprietor or LLC

If you're a sole proprietor, single-member LLC (disregarded entity), or part of a multi-member LLC (taxed as a partnership), you're paying 15.3% in self-employment (SE) taxes on your net business income.

That can add up to thousands of dollars annually—money that could be reinvested into your business or saved for your future.

How an S Corp Election Works

Reasonable Salary: You pay yourself a fair salary that is subject to payroll taxes.
Distributions: Remaining profits can be taken as dividends, not subject to self-employment tax.
Tax Efficiency: This structure allows you to legally minimize your total tax liability.

This election isn’t for everyone—but for the right business, the tax savings can be significant. Some things to consider before making the election.

You’re consistently netting $50,000 (discretionary) or more in profit annually. You just want to make sure the conversion is worthwhile.
You don’t mind running payroll or using a payroll provider
You’re organized and keep solid books
You want to reinvest in your business or increase take-home pay

There are some nuances that need to be considered if you are a multi-member LLC and the S Corp stipulations (i.e. 100 shareholders or less, only 1 type of stock, S Corp restricts shareholders to individuals, certain trusts, and estates, etc.). However, for many small business owners this can be a way to cut self-employment taxes significantly.

If you'd like to discuss how an S Corporation tax election can benefit your business and the steps necessary to convert, please contact us.

How Electing S Corporation Status Could Save You Thousands in Taxes

The Hidden Cost of Staying a Sole Proprietor or LLC

Example: $100,000 Net Profit

How an S Corp Election Works