Should I Elect S Corp? What Every Woman Entrepreneur Needs to Know
If you’ve ever Googled “should I elect S Corp?” after your accountant casually dropped the phrase into conversation—or after a friend insisted it was the magic tax-saving move…you’re not alone. Most women entrepreneurs either avoid the topic because it feels intimidating or rush into it because someone said “you should.”
Here’s the truth: electing S Corp status is neither a golden ticket nor a trap. It’s simply a tool. When you understand how it works, you can use it to save money, streamline your pay, and grow your business with confidence. Let’s break it down in plain language, with zero jargon and plenty of clarity.
So, What Even Is an S Corp?
At its core, an S Corporation isn’t a type of business…it’s a tax election. You can be an LLC or a corporation, then file paperwork with the IRS to be taxed as an S Corp. The key feature? It changes how your business income is treated for taxes.
• Salary + Distribution Model: Instead of paying yourself 100% as “owner draws” (which are subject to self-employment tax), you set up payroll and pay yourself a reasonable salary. Anything left over after expenses and salary can be taken as a distribution, which isn’t subject to self-employment tax.
Think of it like this: your business income gets split into two buckets. One bucket (your salary) is taxed like a regular paycheck. The other (distributions) may avoid thousands in extra taxes if handled correctly.
The Upside (and the Catch)
Electing S Corp status can be a smart financial move, but only if your business is ready.
The Pros:
• Tax Savings: Once you’re consistently profitable, S Corps can save you thousands in self-employment taxes. For example, if you’re making $100K in profit and reasonably set your salary at $60K, the $40K distribution avoids the 15.3% self-employment tax—that’s about $6,000 in savings.
• Credibility with Lenders: Having structured payroll and clear financials can help with things like mortgages or business loans (yes, banks really do look at this).
• Consistency: Payroll creates a rhythm for paying yourself, which can feel grounding when your income has been inconsistent.
The Cons:
• Increased Admin: You’ll need payroll software, quarterly filings, and more diligent bookkeeping. Forgetting compliance can trigger penalties.
• Cost of Setup and Maintenance: Payroll services, CPA fees, and extra admin add new expenses. If your profit isn’t high enough, the savings may not outweigh the costs.'
• Reasonable Salary Rule: You can’t just set your salary at $10K and take the rest as distributions. The IRS expects salaries to be “reasonable” for the role you perform.
So how do you know if you’re ready? A good rule of thumb:
• Profit of $75K–$100K+ annually is often the starting point.
• You want to consistently pay yourself at least $40K–$60K in salary to make the savings worthwhile.
The Biggest Misconceptions About S Corps
This is where so many entrepreneurs get tripped up.
Let’s clear up the myths:
1. “I’ll just pay myself less and save money.” Nope. The IRS watches for abuse. If you underpay yourself, you risk audits, back taxes, and penalties.
2. “I don’t need payroll, I’ll just transfer money.” An S Corp without payroll isn’t compliant. You need to run real paychecks, with withholdings for Social Security, Medicare, and income taxes.
3. “Bookkeeping doesn’t really matter.” In an S Corp, your books matter more than ever. Clean records ensure your salary, expenses, and distributions are documented properly.
4. “It’s just about taxes.” Wrong. It’s about clarity, consistency, and setting up systems that support your long-term growth. Done well, your S Corp can help you plan for retirement, qualify for financing, and feel more confident about your money decisions.
A Real-World Example: Katie’s Story
Katie came to me when her business crossed the $100K mark. She’d been paying herself sporadically as owner draws and was frustrated every tax season. Her CPA had mentioned S Corp, but she wasn’t sure if it was worth the hassle.
Here’s what we mapped out:
• Before S Corp: Katie took about $80K as draws. At tax time, she owed over $12K in self-employment taxes alone.
• After S Corp Election: We set her salary at $60K (reasonable for her industry) and $40K as distributions. That shift saved her nearly $6K in taxes that year.
Bonus: with her S Corp in place, Katie could also create a rental agreement for her home office. That meant her business paid her rent for using her space—a legitimate deduction that further reduced her taxable income.
The result? Katie felt less panicked at tax time, more consistent with her paycheck, and more empowered to plan for growth.
Using the Rules in Your Favor
Here’s the bottom line: electing S Corp status isn’t about gaming the system. It’s about understanding the system well enough to use it in your favor.
• If your business is profitable enough, S Corp election can be a tool to save thousands.
• If you’re not there yet, it’s something to plan for; not rush into.
• Either way, the power is in having clarity and making intentional decisions.
You don’t have to figure this out alone. With the right guidance, you can avoid costly mistakes and build a structure that supports your bigger goals; whether that’s paying yourself consistently, buying a home, or finally taking a stress-free vacation without worrying about taxes.
Your Next Step
Curious if an S Corp makes sense for your business? Book your Free Financial Clarity Call …we’ll break it down together and help you make the smartest money move for where you are right now.
