An S corporation can lower what an owner pays in self employment tax. It also puts you on payroll, permanently, with filings that come due every quarter.
The S corporation is not a different kind of company. It is a tax election you put on top of an LLC or a corporation, and it changes how the owner gets paid. Instead of taking everything as profit, you run a salary through payroll and take the rest as a distribution. That split is the whole point, and it is also where people get in trouble.
Baum's Accounting Services has run payroll and closed books for companies on both sides of this, with controller experience in construction and CFO experience at a mortgage bank behind it. We file the formation and the election for owners in Lexington, Georgetown, Nicholasville, and the rest of central Kentucky, and we are direct about when the election is not worth it. Plenty of businesses elect S corp status too early and spend more on compliance than they save.
There are two moving parts. First the entity: you either form an LLC or a corporation with the Kentucky Secretary of State, or you already have one. Then the election, which goes to the IRS signed by every owner, inside a filing window tied to your tax year. Miss the window and the election generally starts the following year, though relief is available in some late cases. Once it is in place, the company files its own return, issues K-1s to the owners, and runs payroll with withholding and quarterly filings behind it. We handle the formation paperwork and the payroll setup, and work alongside your tax professional on the return itself.
An S corporation saves self employment tax on the distribution portion of your income. It costs you a payroll system, quarterly filings, a separate business return, and a salary you cannot set at zero. Whether that math works depends on how much profit is left after you pay yourself something defensible. Below a certain level of profit, the compliance cost eats the savings and you have added work for nothing. Above it, the savings get real and they repeat every year. Running the numbers on your actual profit takes about twenty minutes, and it is worth doing before you file anything.
Honest answer: a lot of businesses. If profit swings hard year to year, a fixed salary becomes a burden in the lean years. If you want outside investors, an S corporation caps you at one class of stock and a limited number of shareholders, and it blocks most institutional money. If you are putting everything back into equipment and crews and taking almost nothing out, there is not much distribution to save tax on yet. And if the bookkeeping is already behind, adding payroll and a second return on top of it makes the mess bigger. Fix the books first, then revisit the election.
Most S corporation problems trace back to payroll. Owners set a salary once and never revisit it, or they skip payroll for a few months when cash is tight, or they run distributions all year and try to fix it in December. That last one is how penalty notices start. The salary needs to be reasonable for the work you actually do, documented, and paid on a schedule the same way an employee gets paid. We set the payroll up, keep the books tied to it, and flag it when profit shifts enough that the salary needs a second look.
No. It is a tax election. Your LLC or corporation stays what it is under Kentucky law, and the election only changes how the IRS treats the income and how the owner gets paid. Most small businesses in this area elect S corp status on an existing LLC rather than forming a corporation from scratch.
There is no single number. It depends on what you actually do in the business, what someone would be paid to do that job in your market, and how much the company earns. A working owner in construction who runs estimating and field operations is not comparable to a passive investor. Set it too low and you invite a challenge. We help you land on a figure you can defend.
We prepare and file the formation documents and the S corporation election, and get payroll running so the first paycheck is correct. The firm does not prepare income tax returns, so the annual business return goes to your tax professional or to an outside CPA firm we refer you to. Book a consultation and we will map out who does what.
Other work in this area that tends to come up in the same conversation.
Incorporation paperwork, EIN, and initial filings for businesses that need outside investors or more than one class of stock.
Read moreYour federal tax ID, applied for and confirmed. Nothing else moves without it, so it happens early rather than at the last minute.
Read moreOperating under a name that isn't your legal entity name? The assumed name registration gets filed where it needs to be filed.
Read moreBook a consultation. Bring whatever you have, even if it is a mess, and we will tell you straight what it needs.
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