Electing S-Corp status can save Fort Worth business owners thousands in self-employment taxes, but it also comes with rules that can trip you up if you’re not careful.
We regularly see business owners jump into the election, only to run into problems that cost them money, trigger IRS scrutiny, or wipe out the very savings they were hoping to get.
If you’re thinking about an S-Corp for 2025 or already running one, here are the most common mistakes we see and how you can avoid them.
This is the number one S-Corp mistake. The IRS requires you to pay yourself a “reasonable compensation” before taking distributions. Some owners skip this step altogether and take only distributions to dodge payroll taxes. Others pay themselves $10,000 a year when their business is netting six figures.
The problem is that the IRS looks closely at this. If your salary looks unreasonably low compared to the work you do, the IRS can reclassify your distributions as wages and hit you with back taxes and penalties.
How to avoid it: Research what someone in your role would earn in Fort Worth or work with a CPA to establish a defensible salary. Pay yourself through payroll consistently, then take the rest as distributions.
The S-Corp election is not retroactive unless you qualify for late-election relief. If you miss the deadline (two months and fifteen days after the start of your tax year) your election won’t take effect until the next year.
Example: If you wanted to be taxed as an S-Corp in 2025, but you didn’t file Form 2553 by March 15, you’ll be waiting until 2026. That’s a whole year of lost tax savings.
How to avoid it: Put the deadline on your calendar as soon as possible and work with your CPA early in the year.
Once you become an S-Corp, you’re considered both an owner and an employee. That means you must set up payroll, not just write yourself checks. Payroll includes withholding income tax, Social Security, and Medicare taxes, plus filing quarterly reports.
Some owners try to DIY payroll and miss filings or underpay taxes. That creates penalties that can easily cancel out your S-Corp savings.
How to avoid it: Use a payroll service or software that files and pays taxes automatically. If you’d rather stay hands-off, have your CPA manage it for you.
With an S-Corp, keeping clean records matters more than ever. If you’re swiping your business debit card for groceries or using your personal account for client payments, it raises red flags and makes tax reporting a mess.
How to avoid it: Keep a dedicated business bank account and credit card. Pay yourself through payroll or distributions, then use your personal account for personal expenses.
S-Corps come with more paperwork than sole proprietorships or LLCs. Beyond payroll, you’ll file Form 1120-S each year (an S-Corp tax return), provide K-1s to shareholders, and keep corporate records.
Skipping these steps can result in penalties or the IRS questioning whether you’re really running as an S-Corp.
How to avoid it: Stay organized and work with a CPA who can handle the compliance side while you focus on your business.
Not every business is ready for S-Corp status. If your profits are small or inconsistent, the savings may not cover the added payroll and accounting costs. We’ve seen owners spend more on software and filings than they ever saved on taxes.
How to avoid it: Make sure your profits are consistently above $60,000 before electing. Until then, staying a regular LLC may be smarter.
S-Corps can be powerful tax tools, but they also come with strings attached. The mistakes we see most often in Fort Worth aren’t about the election itself, they’re about how the S-Corp is run afterward.
The best way to avoid problems is to treat your S-Corp like a real business: pay yourself properly, run payroll, file on time, and keep clean records.
Do that, and you’ll enjoy the savings without the headaches.
