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Is an S-Corp Right for My Small Business?

Posted by Jonathan Krems | Nov 26, 2021 | 0 Comments

The month of May is Small Business month, and so all this month in the Freedom Friday blog and email newsletter I want to answer questions which will help you succeed as a small business owner.  In today's Freedom Friday blog and email newsletter, I want to answer the question, “Is an S-Corp Right for My Small Business?”  I am frequently asked what an S corporation is, and what it is not, along with what the requirements and advantages of S corporation status.

Let me begin by saying what an S corporation is not.  An S corporation is NOT a business entity.  An S corporation is actually a tax election, and it can be elected for an LLC or a corporation.  If you're a small business owner, you can choose to form either an LLC or a corporation.  Either way, you can elect S corporation status with the Internal Revenue Service (IRS).  If you don't elect S corporation status, then your LLC will be treated as “pass-through entity” by the IRS (also known as a “disregarded entity”).  Alternatively, your corporation will be a C corporation, which can experience “double taxation.”

The primary advantage to S corporation status is tax savings for your small business.  With S corporation status, its possible that the shareholders or members can split their income.  The shareholders or members can decide to take a reduced salary (it must be reasonable), pay income taxes, apply Social Security and Medicare taxes to the smaller salary, and take the remainder of their compensation as dividends for a corporation, or distributions for an LLC.  Dividends or distributions are not subject to self-employment tax but remains subject to personal income tax for each shareholder or member.  Also, losses of the S corporation can be written off on the shareholder's or member's personal tax return, which is an advantage for a startup or newer company.

Lastly, S corporation status is not right for everyone; its not a good fit for every small business.  Is an S corporation right for your small business?  If you're a new small business, and not you're not making much profit, then you might not be making enough money to have an S corporation make sense.  As a rule of thumb, your small business needs to make at least $50,000 in annual profits before considering S corporation status.  When you're making profits at that level, that's when an S corporation is right for your small business.

If you are interested in starting a small business anywhere in Oklahoma, or you are interested in taking your small business to the next level, please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...


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