At what profit level is it worth it?

It depends on a reasonable salary for your role, your state, and payroll and accounting costs — commonly discussed in the region of $40,000 to $60,000 of profit above salary, but that is a rule of thumb rather than a threshold. Model it with actual numbers before electing.

Can a non-resident make this election?

No. S-Corporation shareholders must be US citizens or residents. If you are a non-resident owner and an adviser proposes an S-Corp election, ask them how they intend to satisfy the shareholder eligibility requirement.

What does it cost to run?

You must run payroll, file employment tax returns, and file a separate corporate return on Form 1120-S. Realistically that is a few thousand dollars a year in payroll and accounting — which is precisely why it is not worth electing at low profit.

US business taxes: every form, deadline and obligation

Guide · 2 min read

The S-Corp election: where it starts saving money

It is a real saving and a real cost. The question is only whether your profit is high enough for the first to exceed the second.

The short answer

Electing S-Corporation treatment lets a US-resident owner split income between a reasonable salary, which carries employment tax, and distributions, which do not. It becomes worth considering once profit meaningfully exceeds a reasonable salary for the work. S-Corporation shareholders must be US persons.

The mechanism

In a default LLC, the whole profit is subject to self-employment tax for a US-resident owner. With an S-Corp election, you pay yourself a salary — which carries employment taxes — and take the remaining profit as a distribution, which does not.

The saving is the employment tax on the distribution portion. The cost is payroll administration, a separate corporate return, and higher accounting fees.

When it does not make sense

Profit is not much above a reasonable salary — there is little left to distribute, so little to save.
You are a non-resident. The election is simply unavailable.
The business is volatile. Payroll obligations are fixed; profit is not.
You are planning to raise venture capital, where a C-Corp is the destination anyway.

For the wider entity question see LLC vs C-Corp, and for how owners take money out see founder operations.

Frequently asked questions

At what profit level is it worth it?: It depends on a reasonable salary for your role, your state, and payroll and accounting costs — commonly discussed in the region of $40,000 to $60,000 of profit above salary, but that is a rule of thumb rather than a threshold. Model it with actual numbers before electing.
Can a non-resident make this election?: No. S-Corporation shareholders must be US citizens or residents. If you are a non-resident owner and an adviser proposes an S-Corp election, ask them how they intend to satisfy the shareholder eligibility requirement.
What does it cost to run?: You must run payroll, file employment tax returns, and file a separate corporate return on Form 1120-S. Realistically that is a few thousand dollars a year in payroll and accounting — which is precisely why it is not worth electing at low profit.

Sources

Last reviewed August 23, 2026. Verify against the primary source before acting.

Founders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.

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