S Corp

An S-Corporation, often called an S-Corp, is a tax classification available to both corporations and LLCs that meet certain IRS requirements. By electing S-Corp status, a business avoids double taxation while also allowing owners to reduce self-employment taxes. In this structure, owners can take part of their income as a reasonable salary (subject to payroll taxes) and the rest as distributions (not subject to self-employment tax). To qualify, the business must meet IRS rules such as having no more than 100 shareholders (or members) and only issuing one class of stock. While S-Corp status can provide significant tax savings, it also comes with stricter compliance requirements, such as running payroll and filing additional IRS forms. Many LLCs with growing profits consider making the S-Corp election to maximize after-tax income.