What are the benefits of electing S-Corp status?

Electing S-Corp status can meaningfully reduce your tax bill and add liability protection, if your business and profit level are a good fit for it. The main benefits are: - Savings on self-employment taxes: Unlike a default LLC, an S- Corp lets you pay yourself a reasonable salary as an employee, and only that salary is subject to payroll (Social Security and Medicare) taxes. Remaining profits can be distributed to you as dividends, which aren't subject to self-employment tax. - Pass-through taxation: Like an LLC, an S-Corp doesn't pay corporate-level income tax. Profits and losses pass through to your personal tax return, avoiding the double taxation that applies to a standard C-Corp. - Limited liability protection: Your personal liability for business debts and obligations stays limited to what you've invested in the company. - Added credibility: Operating as an S-Corp can make your business look more established to investors, lenders, and clients. These benefits come with tradeoffs, you'll need to run payroll, pay yourself a "reasonable" salary the IRS could scrutinize, and file an annual Form 1120-S, so S-Corp election tends to make the most financial sense once your business profit is high enough that the self-employment tax savings outweigh the added payroll and compliance work.