Should You Elect Your Business to be Taxed as an S Corp? Here's What to Know.

One of the first big decisions small business owners face is choosing the right legal and tax structure. Many start out by forming an LLC, which is taxed by default as a sole proprietorship (for single-member LLCs) or a partnership (for multi-member LLCs). But did you know you can elect to have your LLC taxed as an S Corporation? This decision can significantly impact your tax liability and how you pay yourself from your business.

At FXBG Accounting & Advisory, we help clients understand which option aligns best with their goals. Being taxed as a sole proprietor is the simpler route and comes with fewer administrative requirements. However, LLC owners taxed as Sole Proprietors pay self-employment taxes – around 15% – on the entire net income of the business.

Electing S Corporation status may offer tax savings. As an S Corp, the owner must pay themselves a “reasonable salary” (subject to payroll taxes), but any remaining profits can be distributed as dividends, which are not subject to self-employment tax. That said, S Corps come with stricter IRS rules, including payroll requirements, shareholder limitations, and more formal recordkeeping.

There’s no one-size-fits-all answer, but the right choice can make a big difference. We can help you weigh the pros and cons, understand the tax implications, and make a decision that supports your business strategy.

Have questions about what’s right for your business? FXBG Accounting & Advisory is here to help you decide with confidence.