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Should I Make The S Election?

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As a small business owner or someone looking into starting your own business, you have no doubt come across articles about making the S election, form 2553 and why it makes sense to be taxed this way as you research how the business should be set up. For a lot of small businesses the S election can make sense from a cost-benefit standpoint, however, due to the passage of the TCJA at the end of 2017, making the S election shouldn’t be a foregone conclusion.

Unfortunately – as with a lot of tax and accounting questions – the answer really depends on the specifics of your circumstances (below are just a few):

  1. How profitable you anticipate your business will be in the near future
  2. Whether or not you will have employees
  3. What your ‘reasonable compensation’ would be if you were taxed as an S corporation
  4. Any additional w-2 wages you may receive from 3rd-party employer(s)

All this to say, when determining whether or not to make the S election for your LLC, partnership or C corporation, it all requires looking at your specific circumstances to determine if and when it makes sense.

If you are an existing business owner contemplating this election or someone looking to start a business and confronting this issue, feel free to reach out to talk through your options ([email protected]).


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