S corporations, with a plan.

When an S corporation makes sense

As a sole proprietor or single-member LLC, you pay self-employment tax on nearly all of your profit: 15.3% up to the Social Security wage base, and 2.9% above it.

As an S corporation, you pay yourself a salary through payroll, and Social Security and Medicare apply to that salary. The rest of the profit can reach you as distributions, without those taxes.

The savings grow with profit, and so do the costs: payroll, a separate business return, and tighter bookkeeping. It usually starts to make sense once profit is steady and comfortably above a reasonable salary for your role.

A reasonable salary

The IRS expects S corporation owners who work in the business to pay themselves a reasonable salary before taking distributions. What is reasonable depends on your role, your hours, your industry, and what you would pay someone else to do the work.

Set it too low and the IRS can treat distributions as wages. Set it too high and you give back the savings. I help you choose a number you can explain, with notes that support it.

Timing and the Form 2553 deadline

To be taxed as an S corporation for 2027, a calendar-year business files Form 2553 any time in 2026 or by March 15, 2027. A late election generally takes effect the next year, though the IRS can grant relief when there is reasonable cause.

An LLC can make the election too. It stays an LLC under state law; only the tax treatment changes. Deciding in the fall leaves time to set up payroll before the first paycheck of the year.

Illinois: the 1.5% replacement tax

Illinois charges S corporations a 1.5% personal property replacement tax on their net income. Sole proprietors and single-member LLCs taxed as sole proprietors do not pay it. Partnerships, including most multi-member LLCs, already do. It belongs in the math before you decide.

Payroll and quarterly estimates

Once you elect, you run payroll for yourself: regular paychecks with withholding, quarterly payroll filings, and a W-2 at year-end. I set you up on a payroll service and keep it reconciled in your books, so paychecks, tax deposits, and filings run on schedule.

Your quarterly estimates change too, since paycheck withholding now covers part of your tax. I adjust them to match.

See your own numbers

The free S corporation estimator on the home page compares the two in seconds. A consultation turns that rough first look into a plan.