Lesson 11 of 11
When the election makes sense
The decision is arithmetic plus a judgement about how stable your profit is.
Work through these in order
- Estimate your annual net profit before any owner salary
- Establish a defensible reasonable salary for your role
- Calculate the employment tax on that salary versus self-employment tax on the full profit today
- Subtract payroll service costs, additional accounting fees and any state-level S corporation tax
- Confirm the remaining benefit is worth the added administration
Other factors
- Is your profit stable, or does it swing year to year
- Do you plan to bring in investors or foreign owners, which would break eligibility
- Do you have the discipline to run payroll on time every period
If the answer is marginal, waiting a year costs little. Electing and then revoking has consequences, including a wait before you can elect again.
Not sure whether the election fits?
The numbers depend on your profit, your role in the business and your state. Gullia Filing's tax team reviews your position, prepares Form 2553 where it makes sense, and sets up payroll so the election holds up.