Two ways electing to be an S Corp can help save you money:
1. Your profits are not taxed as self-employment income
2. It lets you write off your salary, which lowers your payroll taxes.
What's the catch?
Well, S Corp owners are required to pay themselves a "reasonable salary" as employees, and that salary is subject to payroll taxes. That means you need to setup a payroll system and have the cash flow to be able to support a monthly payroll to yourself.
Aren't taxes withheld when I pay myself a salary?
Technically, yes. When you pay yourself a salary from your S Corp, the personal you gets paid. In addition to that, your income and payroll taxes are deducted directly from your paycheck (so you don't have to worry about having enough money to pay them off later). Also, now your S Corp has the ability to write off your salary and its portion of your payroll taxes, which reduces your year-end taxable profits.
Will I still be able to take distributions?
Absolutely! If you have money left over in the bank after all expenses are paid (including your salary), you will be able to take a distribution just like normal.
So, if I have a certain net income, when should I switch?
Unfortunately, there is no magic number that indicates it's time to switch. Until you start making over $20-$40K of net profits annually, you won't benefit much from switching to or starting an S Corp.
Can J. Hall & Company do this for me?
Of course we can! We not only can file the necessary form to get you set up to be an S Corp, but we can get your payroll setup, as well as run the payroll for you. If you're interested in this service, please reach out through our contact form.