As a small business owner or someone looking into starting your own business, you have no doubt come across articles about making the S election, form 2553 and why it makes sense to be taxed this way as you research how the business should be set up. For a lot of small businesses the S election can make sense from a cost-benefit standpoint, however, due to the passage of the TCJA at the end of 2017, making the S election shouldn't be a foregone conclusion.
Unfortunately - as with a lot of tax and accounting questions - the answer really depends on the specifics of your circumstances (below are just a few):
- How profitable you anticipate your business will be in the near future
- Whether or not you will have employees
- What your 'reasonable compensation' would be if you were taxed as an S corporation
- Any additional w-2 wages you may receive from 3rd-party employer(s)
All this to say, when determining whether or not to make the S election for your LLC, partnership or C corporation, it all requires looking at your specific circumstances to determine if and when it makes sense.
If you are an existing business owner contemplating this election or someone looking to start a business and confronting this issue, feel free to reach out to talk through your options (firstname.lastname@example.org).