A BUSINESS OWNER’S READING PATH
Is Your Business Ready for an S-Corp Election?
Use a decision checklist to discuss eligibility, owner compensation, and administration before an election.
S-corporation status is a tax election for an eligible entity. The useful question is whether it fits your ownership, operations, and numbers after you account for the work involved.
1. Check eligibility before modeling savings
The IRS sets requirements for shareholders, share classes, and other aspects of eligibility. Confirm the requirements and election timing with your advisor.
Read: S-corp eligibility rules2. Understand the owner’s work
A shareholder who works in the business needs to consider reasonable compensation. Document duties, time, experience, and relevant market compensation before treating payments as distributions.
Read: Reasonable compensation3. Compare the complete operating cost
Ask your advisor to compare your current treatment with the proposed election using your expected profit, salary, payroll administration, return preparation, and state requirements. A single profit threshold is not a complete analysis.
Read: When to consider an S-corp electionPrepare for the conversation
- Bring recent financial statements and your current entity documents.
- Describe each owner’s role, ownership, and expected payments.
- Ask what payroll and bookkeeping processes would need to change.
- Confirm the election date and required approvals before filing anything.
Primary references: IRS S corporations and IRS compensation guidance.