Question 1

What is an S-Corp election?

Accepted Answer

An S-Corp election is a tax classification made with the IRS that allows a business to pass income, losses, deductions, and credits through to shareholders for federal tax purposes. Business owners who elect S-Corp status may reduce self-employment taxes by splitting income between a reasonable salary and shareholder distributions. The election is made by filing Form 2553 with the IRS.

Question 2

When does an S-Corp election make sense?

Accepted Answer

An S-Corp election generally makes sense when a business consistently generates profits beyond what the owner needs to pay themselves, self-employment taxes continue increasing, and the business has the operational infrastructure to support payroll and bookkeeping requirements. Most advisors evaluate the election when net profit consistently exceeds $50,000 to $75,000 annually, though each situation requires individual review.

Question 3

What happens if I missed the S-Corp election deadline?

Accepted Answer

Missing the S-Corp election deadline does not automatically eliminate your options. The IRS has established relief procedures under Revenue Procedure 2013-30 that allow qualifying businesses to obtain S-Corp tax treatment even after the original deadline has passed. Eligibility depends on the specific facts and circumstances of the business and requires a formal evaluation.

Question 4

Can an LLC elect S-Corp tax treatment?

Accepted Answer

Yes. Many LLCs elect S-Corp treatment for federal tax purposes while maintaining their LLC legal structure under state law. The LLC files Form 2553 with the IRS to make the election. This is one of the most common ways business owners reduce self-employment taxes as LLC profits grow.

Question 5

What is reasonable compensation for an S-Corp owner?

Accepted Answer

Reasonable compensation is the salary an S-Corp owner who actively works in the business must pay themselves through payroll before taking shareholder distributions. The IRS requires this to prevent business owners from avoiding employment taxes entirely through distributions. The amount depends on the services performed, business profitability, industry standards, time devoted to the business, and other factors specific to each situation.

Question 6

Do I need payroll if I have an S-Corp?

Accepted Answer

Generally yes. S-Corp owners who actively work in the business are typically required to receive reasonable compensation through payroll before taking shareholder distributions. Failure to run payroll is one of the most common S-Corp compliance mistakes and can trigger IRS scrutiny and reclassification of distributions as wages subject to employment taxes.

Question 7

Does Aureus Advisory Partners work with S-Corp owners outside of Texas?

Accepted Answer

Yes. Aureus Advisory Partners supports business owners throughout the United States and regularly assists clients with S-Corp elections, late election relief, LLC to S-Corp conversions, reasonable compensation planning, multi-state payroll, and long-term tax strategy regardless of location.

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