What Even Is an S Corp (and Why Everyone’s Talking About It?)
If you’ve ever found yourself nodding along while your accountant said, “You might want to think about becoming an S Corp” and then immediately opened a new tab to Google what that actually means, you are not alone.
This topic comes up constantly in ProfitFULL and during Financial Clarity Calls, usually right after a client says something like, “My friend said I could save thousands on taxes if I switched!” So, let’s break it down... no jargon, no judgment, and definitely no fear.
Because here’s the truth:
An S Corp isn’t magic, but it is a powerful tool when used at the right time.
Let’s Start With the Basics: What Even Is an S Corp?
First things first, an S Corporation (or S Corp) isn’t a business entity, it’s a tax election. That means you can have an LLC or a corporation, and then choose to be taxed as an S Corp. It’s like choosing how your business “shows up” to the IRS. The structure of your business doesn’t change, but the way your income is taxed does.
In plain English:
An S Corp lets you pay yourself a salary for the work you do and then take the rest of your profit as owner distributions.
Why does this matter? Because only your salary is subject to self-employment taxes (Social Security and Medicare). Your distributions are not, which can lead to serious savings when your business is consistently profitable.
How It Actually Works (The 50/50 Rule of Thumb)
Let’s make it real.
Imagine your business brings in $100,000 after expenses. If you’re a standard LLC, that entire $100,000 is subject to self-employment tax, roughly 15.3%, or about $15,300.
If you elect S Corp status, you get to split your income into two parts:
• Salary (W-2 wages): the portion you pay yourself as an employee.
• Distributions: the portion you take as the owner’s share of profits.
A common “golden rule” is a 40/60 split, paying yourself 40–50% in wages and 50–60% in distributions.
Here’s how that might look:
• $50,000 as a reasonable salary (taxed for Social Security and Medicare)
• $50,000 as owner distributions (not subject to self-employment tax) That single decision could save you several thousand dollars a year... without changing your actual income.
The Tradeoff: More Structure, More Admin
Of course, with great tax savings comes a little more structure. When you become an S Corp, you’re officially on payroll, even if it’s just you.
That means:
• You’ll need to run payroll through a system like Gusto or QuickBooks Payroll.
• You’ll file quarterly and annual payroll reports.
• You’ll file a separate S Corp tax return (Form 1120-S).
You’ll also need to pay yourself a reasonable salary, not too high, not too low.
“Reasonable” means what someone in your role would earn for the same work in your industry.
(Yes, the IRS actually uses that phrase, it’s not just accountant slang.)
When an S Corp Makes Sense
S Corps tend to shine once your business is consistently earning $50,000–$60,000+ in profit after expenses and you’re paying yourself regularly.
If you’ve got clean books, predictable income, and the desire to start building a smarter pay and tax structure, this might be your next strategic move.
For example, one of my clients switched to an S Corp after her second full year in business.
Her profit had grown past $90k, and she was tired of sending so much of it to taxes.
Once she made the election and started paying herself through payroll, she saved nearly $7,000 the first year, all while finally feeling like she had a “real” paycheck.
That’s the power of structure.
When It Might Be Too Soon
If your income is still unpredictable or your bookkeeping feels like a mystery file on your desktop, pause for now.
An S Corp isn’t a badge of success.
It’s a tool for efficiency.
Before you add payroll reports and extra filings to your life, make sure you’ve built the right foundation:
✅ consistent income
✅ separate business bank account
✅ basic bookkeeping system
✅ habit of paying yourself something regularly.
Once that’s in place, your numbers will tell you when it’s time to upgrade.
The Heart of It All: Awareness > Hustle
Electing S Corp status isn’t just a financial decision, it’s a mindset one. It’s you stepping into leadership. It’s saying, “I’m running a real business, and I’m ready to pay myself like it.”
That shift, choosing structure, clarity, and intention, is what turns hustle into stability. It’s what transforms a business that works you into one that works for you. And that’s the entire heartbeat behind ProfitFULL:
Profitability is not a chase, it’s a choice.
Next Steps (Because You Don’t Have to Figure This Out Alone)
If you’re wondering whether an S Corp makes sense for you, that’s your cue to book a Financial Clarity Call. We’ll look at your actual numbers together, income, expenses, pay, taxes, and structure, to see whether the S Corp option could help you save money without adding chaos. You’ll leave with a clear next step and a roadmap for your business structure that aligns with your goals, your income, and your peace of mind.
👉 Book your free Financial Clarity Call here: Free Financial Clarity Call
