---
title: Why Consider an S Corp?
description: By structuring as an S Corp you can reduce the amount subject to self-employment tax
---

<https://getcertus.com/blog>

# [Why Consider an S Corp?](https://getcertus.com/blog/why-consider-an-s-corp)

 Written by [Julie Acomb](https://getcertus.com/blog/author/julie-acomb) | Aug 12, 2025 10:50:25 PM

Right now, as a sole proprietor or single-member LLC, all of your net income is subject to self-employment tax (which is 15.3% for Social Security and Medicare) and income tax. However, by electing to be taxed as an S Corporation, you can take a portion of your earnings as payroll (a reasonable salary) and the remainder as profit distributions—reducing the amount subject to self-employment tax.

## **How Do the Tax Savings Work?**

Here’s a simple breakdown:

- As an S Corp, you must pay yourself a “reasonable salary,” which is subject to payroll taxes.
- Any remaining profits can be taken as distributions, which are not subject to self-employment tax.
- This structure can lead to significant savings on Social Security and Medicare taxes while still allowing you to take home the same overall income.

**Example of Potential Savings**

Let’s say you earn **$100,000** in net profit:

- As a sole proprietor: The entire $100,000 is subject to self-employment tax (15.3%), costing $15,300 in self-employment taxes.
- As an S Corp: If you pay yourself a reasonable salary of $50,000, only that portion is subject to payroll taxes ($7,650), and the remaining $50,000 in distributions is free from self-employment tax—saving you $7,650!

### **What Are the Requirements?**

To take advantage of this strategy, the IRS requires that:

✅  You pay yourself a reasonable salary (based on industry standards).  
✅  You process payroll through a service and file payroll tax reports.  
✅  You maintain separate business finances and keep accurate records.

### **Costs to Consider**

There are some additional costs with an S Corp, such as:

- Payroll service fees
- Additional tax filings - you will have a separate business tax return filing..
- Compliance with IRS payroll requirements. (Certus offers an IRS defensible Reasonable Compensation Study.

## **Bottom Line: Is It Worth It?**

For many business owners, the tax savings far outweigh the costs. If your business is consistently earning $40,000+ in net profit, an S Corp may be a great way to reduce your tax burden.

## Next Steps: 

Reach out today so we can help you decide if this is right for you!

385-557-7700

[View full post](https://getcertus.com/blog/why-consider-an-s-corp)

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