> ## Documentation Index
> Fetch the complete documentation index at: https://docs.pluvel.com/llms.txt
> Use this file to discover all available pages before exploring further.
# S-Corp Election
> Elect S-Corporation status for tax savings.
You've heard people talk about S-Corps like they're some magical tax loophole. They're not magic, but they can save you real money — $5,000, $10,000, even more per year if your situation is right.
Here's the catch: an S-Corp isn't actually a business entity. It's a tax election. You form an LLC or Corporation first, then file Form 2553 with the IRS to be taxed as an S-Corp.
## How S-Corps save you money
The benefit comes down to one thing: **self-employment tax savings**.
With a regular LLC, you pay self-employment tax (15.3%) on all your profits. With an S-Corp, you only pay it on the wages you pay yourself. Everything above your salary passes through without self-employment tax.
### A real example
You're a consultant. Your business makes \$150,000 in profit.
| Structure | Self-employment tax |
| -------------------------------------------- | -------------------------- |
| **Regular LLC** | $21,195 (15.3% × $150,000) |
| **S-Corp** (paying yourself \$80,000 salary) | $12,240 (15.3% × $80,000) |
That's **\$8,955 saved per year** — enough to pay for accounting software, business insurance, and a nice dinner to celebrate.
You must pay yourself a "reasonable salary" before taking distributions. The IRS watches for S-Corps that pay unreasonably low salaries, and they'll reclassify your distributions as wages if they catch you.
## When S-Corp makes sense
S-Corp election typically saves you money when:
* Your business profits exceed $60,000-$80,000 annually
* You're currently paying significant self-employment tax
* You can handle the additional payroll complexity
* Your situation fits within S-Corp restrictions
Below \$60,000 in profit, the savings often don't outweigh the added complexity and payroll costs.
## S-Corp restrictions
Not everyone can elect S-Corp status:
| Restriction | Limit |
| ------------------- | ---------------------------------------------------------------- |
| Shareholders | Maximum 100 |
| Shareholder types | US citizens and residents only — no foreign owners |
| Stock classes | Only one class of stock (voting differences OK) |
| Entity shareholders | No corporations or partnerships as shareholders (some trusts OK) |
| Fiscal year | Generally must use calendar year |
Planning to raise venture capital? S-Corp probably won't work. Investors want preferred stock (multiple classes) and may include foreign investors or investment funds.
## Electing S-Corp status
Create your LLC or Corporation. You can't elect S-Corp without an underlying entity to elect for.
You need a federal tax ID before filing Form 2553.
Submit to the IRS. All shareholders must sign. Pluvel files this for you.
The IRS sends a determination letter confirming your S-Corp status. Usually takes 60-90 days.
## Filing deadlines
| When you want S-Corp status | File Form 2553 by |
| ---------------------------------- | ------------------------------- |
| From the beginning of the tax year | March 15 of that year |
| From formation | Within 75 days of formation |
| Starting next year | Anytime during the current year |
Missed the deadline? The IRS accepts late elections with "reasonable cause." Pluvel can help you file for late election relief — it usually works if you have a legitimate reason.
## The "reasonable salary" requirement
The IRS requires S-Corp owners who work in the business to receive "reasonable compensation." What counts as reasonable?
**Factors the IRS considers:**
* What similar positions pay in your industry
* Your experience and qualifications
* Time you devote to the business
* Comparable salaries in your geographic area
* Complexity and responsibility of your role
**Rule of thumb:** Your salary should be at least 40-60% of your business profits before distributions.
### What happens if your salary is too low
* IRS reclassifies distributions as wages
* Back payroll taxes, plus penalties
* Interest on unpaid taxes
* Audit of other years
It's not worth the risk. Pay yourself reasonably.
## Payroll requirements
As an S-Corp, you must:
1. **Pay yourself a salary** — Regular paychecks, not occasional draws
2. **Run payroll** — Withhold and remit federal and state payroll taxes
3. **File payroll tax returns** — Form 941 quarterly, Form 940 annually
4. **Issue W-2** — To yourself at year-end
Pluvel handles payroll for S-Corps. We calculate withholdings, file returns, and issue your W-2. You just approve the paychecks.
## S-Corp vs. regular LLC
| Factor | Regular LLC | S-Corp |
| ---------------------------- | -------------- | ----------------------------------------- |
| Self-employment tax | On all profits | Only on salary |
| Payroll required | No | Yes |
| Ongoing complexity | Lower | Higher |
| Cost to run | Lower | Higher (payroll fees, additional filings) |
| Best for profits under \$60k | ✓ | ✗ |
| Best for profits over \$80k | ✗ | ✓ |
## How distributions work
After paying yourself a reasonable salary, remaining profits can be distributed to shareholders. These distributions:
* Are **not** subject to self-employment tax
* Pass through to your personal return
* Are taxed at your ordinary income rate
* Must be proportional to ownership (no picking favorites)
### Example breakdown
Your S-Corp earns $150,000 in profit. You pay yourself $80,000 salary.
| Item | Amount | SE Tax? |
| ---------------- | --------- | ----------- |
| Salary | \$80,000 | Yes (15.3%) |
| Distribution | \$70,000 | No |
| **Total income** | \$150,000 | — |
| **SE tax owed** | \$12,240 | — |
The \$70,000 distribution still gets taxed as regular income, but you avoid the 15.3% self-employment tax on it.
## Revoking S-Corp status
You can revoke S-Corp status if:
* Shareholders owning more than 50% consent
* You want to return to C-Corp or regular LLC taxation
Revocation takes effect on the date you specify or the first day of the next tax year.
Learn how to pay yourself and run payroll.