Should my business be an S-Corp, and what do I have to set up once it is?
An S-Corp election usually starts paying for itself once a solo business clears roughly $60,000 to $80,000 of net profit, because it lets you split income between a reasonable W-2 salary and distributions that avoid self-employment tax. The election itself is 30 minutes of paperwork. The savings live in what you set up after: salary, payroll, an accountable plan, basis tracking and retirement contributions.
Who this is for
Solo consultants, agents, contractors and other service businesses on Schedule C with steady profit.
Owners who already elected S-Corp on their own and never set up the pieces that create the savings.
Real estate agents and brokers who run their commissions through an S-Corp.
Who it isn't for
Businesses under about $50,000 of net profit, where payroll and compliance costs eat the savings.
Restaurants and food service, and e-commerce or retail with inventory.
Anyone looking for a one-time return with no planning.
What we actually do
The election decision
We run the numbers on your actual profit, your state and your retirement goals before you file Form 2553. Reddit's "60/40 rule" is not IRS guidance and is not in the Code. The right split comes from a reasonable compensation study with wage data, which is the document the IRS asks for when it challenges a salary. The full math is in our article on when an LLC should elect S-Corp status.
Payroll and reasonable compensation
You pay yourself a documented W-2 salary first. Distributions come after. Too low a salary invites reclassification of distributions as wages, back payroll taxes, penalties and interest. Too high a salary wastes the election. We set the number and defend it. More on how reasonable salary is set.
The accountable plan
Once you are an S-Corp, mileage, home office, phone and internet no longer flow through Schedule C. Without a written accountable plan under Treas. Reg. 1.62-2, those deductions are lost. We write the plan and run the reimbursements through the company.
Basis and distributions
Your stock basis decides whether distributions are tax-free and whether losses are deductible. Form 7203 goes with your 1040 when you receive a non-dividend distribution, claim a loss deduction, dispose of stock or receive a loan repayment from the company. Most owners who elected on their own have never tracked basis.
Health insurance and retirement
Premiums the S-Corp pays for a more-than-2% shareholder go in Box 1 of your W-2, or the self-employed health insurance deduction is lost. A Solo 401(k) adds an employer contribution of up to 25% of W-2 wages on top of the employee deferral, which is why it beats a SEP IRA for most solo S-Corp owners.
No April surprises
You shouldn't learn your tax bill in April. We run a tax projection before year-end that covers salary, distributions, estimates and withholding, so the number is known while it can still be changed.
How it works
It starts with a free 20-minute intro call. Afterward, we send you the playbooks relevant to your situation. If you want us to put them in place, a fixed-fee engagement covers the election, payroll setup, the accountable plan, the 1120-S, your 1040 and a year-end tax projection. Everything is remote and runs on a secure client portal.
What it costs
Fixed fee. Solo S-Corp transitions and ongoing advisory typically start in the low-to-mid four figures annually. You get the number before you sign.
Common questions
- At what profit should my LLC elect S-Corp status?
Usually once a solo business reaches roughly $60,000 to $80,000 of net profit. Below that, the two costs that come with the election, a payroll service and a separate 1120-S return, tend to eat the self-employment tax you save. The exact point depends on your state and the salary that is reasonable for your work. See when an LLC should elect S-Corp status.
- Can I elect S-Corp for this year after the year started?
Form 2553 is due no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the year before. A late election can often still be accepted under Rev. Proc. 2013-30 when you have reasonable cause for filing late.
- What salary should I pay myself?
A reasonable one: what a business would pay someone else to do your job, documented with wage data. There is no fixed percentage in the Code or IRS guidance. More in how reasonable salary is set.
- Can my S-Corp reimburse my car and home office?
Yes, under a written accountable plan. The company reimburses you, deducts the cost, and the reimbursement isn't income to you. See vehicle deductions with an S-Corp, the home office and the accountable plan.
- Do I still need to make estimated payments as an S-Corp owner?
Often fewer of them. Income tax withheld from your S-Corp paychecks is treated as paid evenly through the year, so withholding through payroll can replace or reduce quarterly estimates. See what to do about missed estimated payments.
- What is Form 7203 and do I need it?
It is the S-Corp shareholder's basis statement, filed with your 1040. It is required in any year you receive a non-dividend distribution, claim a loss deduction (including one carried over from a prior year), dispose of stock or receive a loan repayment from the company.
- Does the QBI deduction change with an S-Corp?
Above the income threshold, the deduction for a business that isn't a specified service business is limited by the W-2 wages it pays, so your salary and your QBI deduction interact. Specified service businesses lose the deduction entirely above the phase-in range. See how S-Corp salary affects the QBI deduction.
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I elected S-Corp. What do I need to set up next?
After you file Form 2553, the savings depend on setup: confirm the IRS accepted the election (it generally responds within 60 days), put yourself on payroll at a reasonable salary, adopt an accountable plan, move health insurance onto your W-2, track stock basis for Form 7203 and adjust your estimated taxes. For 2026, salary runs through payroll with Social Security tax up to the $184,500 wage base.
Can raising my S-Corp salary lower my total tax because of the QBI deduction?
Sometimes, yes. For 2026, once taxable income passes $201,750 ($403,500 married filing jointly), the QBI deduction can be capped at 50% of the W-2 wages your S-Corp pays, and for a solo owner that is your salary. For a business that isn't a specified service business, a salary that's too low chokes the deduction, so there is a range where more salary lowers total tax. For consultants, doctors, lawyers and other specified service businesses, it doesn't work that way.
How is reasonable salary set for an S-Corp owner?
Reasonable salary for an S-Corp owner is what the business would pay someone else to do the same work, documented with market wage data for your role and area. The IRS has no formula, and the 60/40 split is not IRS guidance. For 2026, every dollar of salary moved into distributions avoids about 15.3% in payroll tax below the Social Security wage base, and when salary is too low the IRS can reclassify distributions as wages.
When should my LLC elect S-Corp status?
There is no IRS profit threshold for electing S-Corp status. For 2026, the election pays when the self-employment tax you stop paying on profit above a reasonable salary, roughly 15.3% of that gap, is larger than the added cost of payroll, a second tax return and state filings. The salary you can support decides the answer more than profit does.
What year-end moves should S-Corp owners make, and what's the deadline to elect S-Corp status for 2027?
Most 2026 year-end moves for S-Corp owners run through payroll, so they have to land on a paycheck dated by December 31, 2026: owner salary, extra withholding, health insurance on the W-2 and 401(k) deferrals. The S-Corp election is not a December deadline. A calendar-year LLC can file Form 2553 any time in 2026, or by March 15, 2027, to be an S-Corp for all of 2027.
How do S-Corp owners deduct a home office?
For 2026, an S-Corp owner who works for the company cannot claim a home office deduction on their own return, because owner-employees can't deduct unreimbursed work expenses. The S-Corp reimburses the office's share of actual home costs under an accountable plan and deducts it. The $5 per square foot simplified method is a Schedule C tool and doesn't carry over.
Which business meals can I deduct, and how does it work if I have an S-Corp?
For 2026, most business meals are 50% deductible: meals with clients, prospects or employees, and your own meals while traveling away from your tax home. Entertainment is not deductible, and the temporary 100% restaurant rule ended after 2022. An S-Corp owner gets the deduction by having the company reimburse meals under an accountable plan, and the company takes the 50% deduction.
I missed my quarterly estimated tax payments. How do I avoid the penalty?
For 2026, the cleanest fix is extra income tax withholding before December 31. Under IRC section 6654(g), withholding is treated as paid in four equal parts on the April 15, June 15, September 15 and January 15 due dates, so it can cover quarters you missed. A late estimated payment only counts from the day you send it, and the IRS charges 6% to 7% a year on the shortfall in 2026.
Should I buy a 6,000-pound SUV for the tax write-off?
Usually not, unless the business actually needs the vehicle. For 2026, an SUV rated over 6,000 pounds gross vehicle weight can qualify for 100% bonus depreciation, and Section 179 expensing on an SUV is capped at $32,000. But a deduction only cuts tax at your marginal rate, so most of the purchase price still leaves your bank account, and dropping business use to 50% or less triggers recapture.
Do I need an accountable plan for my S-Corp, and what does it cover?
Yes. Once you elect S-Corp status, you are an employee of your own company, and for 2026 and later the Code permanently bars employees from deducting unreimbursed work expenses. An accountable plan under Treas. Reg. 1.62-2 lets the S-Corp reimburse your mileage (72.5 cents per mile through June 30, 2026 and 76 cents after), home office, phone and internet tax-free and deduct the cost.
How do I deduct my vehicle, and what changes with an S-Corp?
For 2026, self-employed owners deduct business driving with either the standard mileage rate (72.5 cents per mile through June 30, 76 cents from July 1) or actual expenses times business-use percentage. An SUV rated over 6,000 pounds can also qualify for a $32,000 Section 179 deduction plus bonus depreciation. With an S-Corp, the choice becomes an accountable plan reimbursement or a company-owned vehicle.
General information for educational purposes, not advice for your situation. Tax rules change; talk with a CPA before acting.