You see the whole cost
Payroll, the separate return and California’s tax on S-corporation income all sit in the comparison before you decide.
Business
An S-election saves self-employment tax — and buys you a payroll
We run the numbers first, file Form 2553 inside its deadline, set a salary we can defend on paper, and then actually operate the payroll the election requires.
The S-corporation election is sold online as free money. It is not. What it does is split your business profit into two pieces — a wage you pay yourself, which carries Social Security and Medicare tax, and a distribution, which does not. The saving is real, but it only exists on the distribution half, and it arrives with a payroll to run, quarterly Forms 941, a W-2 each January and a separate corporate return on Form 1120-S.
So the honest question is whether the saving is bigger than the cost. Below roughly $50,000 of net profit it usually is not. Above it, the arithmetic tips and keeps tipping. We do that calculation with your figures before anything is filed, and if the answer is no this year, we tell you no and revisit it next year.
Scope
What’s included
The election modelled first
Your profit run both ways — as it is taxed today and as an S-corporation — with the payroll and return costs included, not left out.
Form 2553 filed on time
Prepared, signed by every shareholder, and filed within the window — generally two months and fifteen days into the year the election is to take effect.
Form 8832 where it is needed
Entity classification handled for LLCs and other eligible entities, so the S-election lands on the classification it expects.
Reasonable compensation study
A written salary figure built from your duties, hours, industry and local wage data — the file an examiner asks to see.
Payroll set up and run
Federal and EDD employer accounts, W-2 wages, quarterly Form 941 and California DE 9 and DE 9C filed on schedule.
Late-election relief
Where the deadline was missed, we prepare the late election with a reasonable-cause statement under the IRS relief procedure.
Outcome
Why it matters
A salary you can defend
Reasonable compensation is the single thing the IRS looks at hardest on an S-corporation. Ours is documented when it is set.
The payroll actually happens
An election with no W-2 behind it is the most common way this goes wrong. We run it, so it does not.
Process
How it works
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Run the numbers
Current and projected profit, owner draws, and what a defensible salary would be at that level.
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Decide, in writing
A short memo with the saving, the added cost and the recommendation — including when the recommendation is to wait.
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File the election
Form 2553, and Form 8832 if the entity needs it, filed and tracked until the IRS acceptance letter arrives.
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Stand up the payroll
Employer registrations, the first paycheque, and the quarterly and annual filing calendar it now owns.
Suited to
Who this is for
- Sole proprietors and single-member LLCs clearing solid profit
- Contractors and consultants paying heavy self-employment tax
- LLC owners who want S treatment without re-forming the entity
- Owners who filed an S-election but never ran payroll
- Businesses that missed the 2553 deadline and need relief
FAQ
Questions
There is no percentage in the law, despite what you will read. The standard is reasonable compensation for the work you actually do — what you would have to pay someone else to do your job, given your hours, your duties and your industry in this area. We build the figure from wage data and your own job description, write it down, and keep the file. A salary set at a round number with nothing behind it is exactly what gets adjusted.
Not necessarily. The IRS has a relief procedure for late S-elections where the entity intended to be an S-corporation, has otherwise behaved like one, and has reasonable cause for filing late. It is a real route, not a formality — the request has to explain what happened. The sooner it is filed after the intended effective date, the better it goes.
Yes, and it surprises people. California does not simply follow the federal pass-through — it charges its own franchise tax on the S-corporation’s net income, subject to the $800 annual minimum, and the entity files Form 100S. So the state cost does not disappear when the federal one shrinks. We put that in the comparison before the election, not after.
Often needed alongside this
Other services
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Business Formation & Entity Selection
The structure you choose in week one decides what you pay in tax for years. We pick it with the numbers in front of us, then file everything that has to be filed.
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Payroll Services
Running the numbers is the easy part. Staying on the right side of the EDD, wage orders, sick-leave accrual and worker classification is where employers actually get hurt.
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Business Tax Returns & Compliance
K-1s flow straight through to the owners without a hand-off — which removes the single most common source of filing errors in business.
Let’s find out what you should actually be paying.
Thirty minutes with an Enrolled Agent, at no charge. Bring last year’s return and we will tell you plainly what we would do differently — and what it would cost.