Should my LLC elect to be taxed as an S corp?
Short answer: Sometimes. An S corp can lower self-employment tax on profits above a reasonable salary, but it adds payroll, a separate return and higher costs.
A single-member LLC is taxed like a sole proprietor by default, so all of its profit is subject to self-employment tax. Electing S corp status (Form 2553) lets you split profit between a salary, which carries payroll tax, and distributions, which do not.
The trade-offs:
- You must pay yourself a reasonable salary through payroll, with quarterly payroll filings and year-end W-2s.
- The business files its own return (federal Form 1120-S and Utah TC-20S).
- Bookkeeping, payroll and tax prep cost more each year.
The election tends to pay off when profit is steady and well above what a reasonable salary for your work would be. We run a side-by-side estimate with your numbers before you file the election.
General information from Davis Schuler & Associates, LLC, not advice for your situation. Tax rules and thresholds change; confirm the current rules before acting.
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