What is S-Corp?
A tax election that can save established businesses money on self-employment taxes.
An S-corp isn't really a business structure — it's a tax election you make with the IRS (usually as an LLC or corporation). It lets you split your income into a 'reasonable salary' (which pays payroll tax) and 'distributions' (which don't), potentially saving thousands in self-employment tax.
The tradeoff: more paperwork, payroll, and accounting costs. The rough rule of thumb is that an S-corp starts making sense once your business nets around $60,000–$80,000+ per year.
Below that, the admin overhead usually eats the savings. Talk to an accountant before electing — this is one where the math is very specific to you.
Related terms
Definitions from the Business Dog Glossary — educational, occasionally satirical, never financial advice.