How Small Businesses Can Save on Taxes (Legally)

Switching to an S Corp Could Save You Thousands

Switching to an S Corp is straightforward and can save you thousands in taxes every year. I’ve helped dozens of small business owners make the switch, many saving tens of thousands annually. The election itself is simple: it’s a short, two-page IRS form. All you need is an EIN, but the tax savings can be huge.

Why Does an S Corp Save So Much?

By default, the IRS classifies new businesses as either sole proprietors or partnerships. Under these structures, all income is hit with Social Security and Medicare taxes (FICA), which total 15.3% of net income. This rate doesn’t scale up or down with income, it applies across the board, often hitting smaller businesses the hardest.

Many otherwise promising businesses struggle to get off the ground because of this heavy tax burden. S Corps, however, put a cap on how much of your income is subject to FICA tax, and you set that cap by choosing your salary.

How It Works

Sole proprietors and partnerships pay FICA on all net business income. An S Corp is different: it pays you, the owner, a salary, and only that salary is subject to FICA tax. The IRS expects your salary to be “reasonable,” but it doesn’t mandate an exact number. I generally recommend setting it at 30–40% of your business income.

Let’s say a sole proprietor earns $80,000 in net income. FICA tax would be $80,000 × 15.3% = $12,240 before income tax.

As an S Corp, if you take a $35,000 salary, FICA tax applies only to that amount: $35,000 × 15.3% = $5,355.

That’s a savings of $6,885 every year.

The Bottom Line

Even modest businesses can save thousands with an S Corp election. The concept is simple, but staying compliant requires consistency—that’s where I come in. I keep your filings current with the IRS and state agencies, manage payroll reporting, handle notices, prepare and file your business return, and can serve as your personal tax professional too.

I also offer bookkeeping to preserve your audit trail, minimize overhead, and safeguard your tax savings. Most of my clients pay for my services entirely through their S Corp savings— and still pocket thousands more after fees.

Could an S Corp Work for You?

If you’re curious, call our office and speak with a CPA today at (919) 341-9713 or email incorporate@spv.accountants. You can also try our free S Corp Tax Savings Calculator to see what your potential savings look like.