The S corp election: when it saves real money and when it just adds paperwork

Somewhere around $60,000 of profit, the internet starts whispering that you should be an S corp. Sometimes the internet is right. The savings are real: profit above a reasonable salary escapes self-employment tax, and at healthy margins that can mean five figures a year.

The three costs nobody mentions

First, payroll: you must run it, for yourself, all year, with filings. Second, the reasonable-salary question: set it too low and you are inviting a conversation with the IRS you do not want. Third, state wrinkles and fringe-benefit limits that quietly claw back part of the headline savings.

Our rule of thumb: below about $50,000 of consistent profit, the overhead usually eats the benefit. Above $80,000, the election usually wins, sometimes decisively. In between is exactly what a planning conversation is for.

The timing trap

The election generally must be filed by March 15 to count for the current year. Every autumn we meet owners who decided in July and assumed the savings had already started. Decide in December, elect in January, and the math works the whole year.