We get asked this question constantly: “Should I switch to an S-Corp to save on taxes?” And the honest answer is — maybe, but not always, and definitely not without doing the math first.

Let’s talk through it like actual humans instead of tax jargon.

What’s the appeal of an S-Corp, anyway?

The big draw is self-employment tax savings. As a sole proprietor or single-member LLC, all your business profit is subject to self-employment tax — currently around 15.3%, covering Social Security and Medicare.

With an S-Corp, you pay yourself a “reasonable salary” (which is subject to payroll taxes), and the remaining profit can be taken as a distribution, which isn’t subject to self-employment tax. That split can genuinely save some business owners a meaningful amount of money.

So why isn’t everyone doing this?

Because it comes with real costs and real responsibilities that don’t make sense for every business:

Payroll. You now need to run actual payroll for yourself, which means payroll software or a service, payroll tax filings, and more moving parts.

More complex tax filing. S-Corps file a separate business tax return, which usually means higher accounting fees.

The “reasonable salary” requirement. The IRS expects you to pay yourself a salary that reflects what someone in your role would actually earn — not an artificially low number just to dodge payroll tax. Get this wrong, and it can trigger scrutiny.

It usually only makes sense above a certain profit level. If your business nets under roughly $40,000–$60,000 a year, the extra costs of running an S-Corp often eat up most or all of the tax savings.

The math you actually need to do

Before making this decision, you want to compare:

• What you’d pay in self-employment tax as your current structure
• What you’d pay in payroll taxes on a reasonable salary, plus the added cost of payroll and tax prep, as an S-Corp

If the S-Corp savings comfortably outweigh the added costs, it’s worth considering. If it’s close or the added complexity outweighs the benefit, staying as-is might be the smarter move — at least for now.

This isn’t a decision to make based on something you read online or heard from another business owner. Every business’s numbers are different, and the “right” answer depends entirely on your actual profit, your industry, and how comfortable you are managing the extra admin.

If you’re on the fence, it’s worth running your actual numbers before deciding either way — because guessing on this one can genuinely cost you money in both directions.