An S-Corp election can save self-employed founders thousands in taxes per year. But it's not for everyone. Here's the math, the requirements, and the decision framework.
As a sole proprietor or single-member LLC, all your profit is subject to self-employment tax: **15.3%** on the first $176,100 (2025). That's on top of income tax.
An S-Corp election splits your income:
The math at $80,000 profit:
Without S-Corp: $80,000 × 15.3% = $12,240
With S-Corp (salary $40k, distribution $40k):
File **Form 2553** with the IRS by:
You also need to run payroll for yourself — use a service like Gusto (~$40/month).
**Under $50,000 profit:** Payroll administration costs (~$500/year) eat most savings.
**Unpredictable income:** Managing salary and distributions gets complicated.
**Planning to raise VC:** S-Corps are limited to 100 shareholders and one class of stock. VCs need preferred stock.
Talk to a CPA before filing. At the right profit level, it's one of the most powerful tax moves available.
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