We get this question a lot. For some businesses, the S-Corp election makes sense; for others, it doesn’t, and for still others, it’s a maybe. So how do we make sense of it? Let’s skip ahead and dive right into why or why not an S-Corporation is for you.

Pros of an S-Corp

• Get a regular paycheck
• Reduce tax burdens
• Limited liability protections

Cons of an S-Corp

• File an extra tax return
• Manage new deadlines and compliance requirements, including reasonable compensation 
• Extra cost of payroll filing and tax preparation

How much will an S-Corp save?

This is a tricky question. The Tax Jobs and Cuts Act of 2018 added the Qualified Business Income Deduction (QBI), which increased tax savings for partnerships and disregarded entity tax filers. But this deduction has diminished S-Corps’ tax savings, and new elections should be considered on a case-by-case basis.

Honorable Mention

The QBI deduction is not permanent and will sunset at the end of 2025 unless Congress acts before then to extend the deduction or make it permanent. Should the deduction sunset, then S-Corp elections will be the clear winner for small businesses looking to reduce their tax liabilities.

Get in touch today to schedule a meeting and find out if an S-Corp election makes sense for your business!