Should I be an S-Corp, and at what profit does it make sense?
Short answer
An S-Corp usually starts to make sense for a creator once yearly profit reaches about $50,000 to $70,000, but the right answer depends on your profit, a reasonable salary and your state.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
How it saves money: as a sole proprietor or default LLC, you pay self-employment tax of about 15.3% on your profit. As an S-Corp, you pay yourself a reasonable salary through payroll and pay payroll taxes on that salary. Profit above the salary comes out as distributions that aren't subject to self-employment tax.
What it costs: payroll software, quarterly payroll filings, a separate business tax return, and in some states extra fees. Below the $50,000 to $70,000 range, those costs can eat most of the savings.
How we answer it: option A, option B, and a recommendation. We run your numbers both ways and show you the difference.
You may hear a CPA say an S-Corp will overcomplicate things. It is more work. Your numbers should decide, not a rule of thumb.
Before electing, make sure:
- Your LLC is in good standing with your state
- Your EIN and business name match IRS records
- Business and personal money are fully separate
Timing matters. Setup takes a couple of months, and the election has filing deadlines, though in some cases it can still apply back to the start of the year. S-Corp setup and payroll are included on Creator and are an add-on on Core.
These are not guarantees. Every creator's situation is different.