All business owners should CONSIDER having their LLC taxed as an S-Corp by filing IRS form 2553

21 Dec 2022 · 1 min

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An LLC owner can file IRS form 2553 to be taxed as an S-Corp, paying the 15% self-employment tax only on salary, not on remaining profits. This saves money once you're making around $50,000 annually, though you'll need an accountant to handle payroll.

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How does an LLC taxed as an S corporation save you money on taxes? Basically, when you have a regular LLC that's not taxed as an S corporation, or you don't have an LLC at all, then you have to pay self-employment tax, which is around 15%, on all of the money that the business makes. Whereas if you have an LLC taxed as an S corporation, then you pay yourself a reasonable salary of that reasonable salary, you do have to pay self-employment tax. So you do have to pay that 15% tax, but the money that the LLC makes that's in excess of the reasonable salary gets to avoid the self-employment tax. So essentially the S-corp election helps you save the 15% tax on a portion of your profits. But keep in mind, having an LLC taxed as an S-corporation means that you'll probably have to hire an accountant to set up payroll, and most accountants don't really find it beneficial until your LLC is making around $50,000 in profit per year.

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