When an LLC Isn’t Enough: How and When to Elect S-Corp Status
At some point, your business may outgrow the simplicity of an LLC. That’s when the S-Corp election can start making sense.
Why S-Corp status exists
An S-Corporation isn’t a different business type. It's a tax election for your existing LLC or corporation where you perform two roles::
Employee: You pay yourself a reasonable salary and withhold payroll taxes (Social Security + Medicare).
Owner: You take any remaining profit as distributions, which are not subject to self-employment tax.
When it makes sense
Your business net income around $60,000–$80,000+
You’re consistent with revenue (not just a one-time good year)
You’re required to run payroll and quarterly filings
How to do it
Form an LLC (if you haven’t already).
File IRS Form 2553 to elect S-Corp status.
Set up payroll for yourself. Gusto, ADP or QuickBooks are some of the popular choices.
Keep clean books to clearly separate salary from distributions.
Example
Let’s say your studio nets $120,000 this year.
As a standard single-member LLC, you’d pay self-employment tax (≈15.3%) on the entire $120,000, or about $18,360.
As an S-Corp, you might pay yourself a $70,000 salary (subject to payroll tax) and take the remaining $50,000 as distributions, which are not subject to self-employment tax.
That shift could save roughly $7,000–$8,000 in taxes while still keeping you compliant with IRS “reasonable compensation” rules.
The S-Corp isn’t a magic trick. It’s a tool. The right timing makes all the difference.
While you could definitely do these tasks yourself, hiring a tax professional to handle them for you would probably be a really smart financial move.
👉 This is one of the 10 challenges I tackle with clients in the FAR Financial Clarity System™.
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