What To Know About S Corporation
Why You're Considering the Change
• Are you making enough profit to benefit from S Corp tax treatment?
• Do you want to save on self-employment taxes?
• Are you okay with increased administrative work?
I. IRS Requirements for S Corp
1. Must be a U.S. entity
2. Only one class of stock
3. No more than 100 shareholders
4. Shareholders must be U.S. citizens or residents
II. Reasonable Salary Requirement
1. You as an owner must pay yourself a reasonable salary
2. The IRS scrutinizes this — too low = red flag
3. Salary is subject to payroll taxes
III. Payroll & Accounting Setup
1. Run payroll and issue W-2s
2. Withhold payroll taxes (Social Security, Medicare, etc.)
3. File quarterly payroll tax returns
4. Possibly hire a payroll provider or accountant
IV. Bookkeeping Becomes More Complex
1. You’ll need proper books to track salary, distributions, expenses, and retained earnings
2. File Form 1120-S each year
3. Provide K-1s to all shareholders
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