S-Corp Election

On $100K of net SE income, S-Corp election typically saves $7K-$10K/year in self-employment tax. The savings come from splitting income into "reasonable salary" (subject to SE tax) and "distributions" (not subject to SE tax). For higher income, savings scale up.

IRS requires S-Corp owners doing real work to pay themselves a market-rate salary first, then take distributions. Reasonable = what you'd pay an unrelated employee for the same role. For Moreno Valley CPA work, that's typically $60K-$90K. We document the analysis.

For a new entity: 75 days from formation to elect for current year via Form 2553. For an existing entity electing for a new tax year: by March 15. Late election relief (Rev Proc 2013-30) is available for up to 3 years late if reasonable cause exists.

Added complexity: must run payroll for yourself (~$150/mo). Must file Form 1120-S annually (~$1,200 in prep fees). $800 CA franchise tax. Need reasonable comp analysis. Below ~$40K of SE income, the costs exceed savings — we model your breakeven.

Yes — your LLC stays an LLC legally but is taxed as an S-Corp. This is the most common setup for IE service businesses. We file the entity classification election (Form 8832) + S-Corp election (Form 2553) together.