When you set up a business in Texas, one of the first questions is how to structure it. Sole proprietor, LLC, partnership, or S-Corp.
Each has its own rules, and each affects how you pay taxes. If you have heard about the potential tax savings of electing S-Corp status, you might be wondering if it makes sense for your small business in 2025.
An S-Corp is not a separate type of business you create at the state level. It is a tax status you request from the IRS. If you already have an LLC or a corporation, you can file Form 2553 to have it taxed as an S-Corp.
With this election, your business income passes through to you without paying federal corporate tax. Unlike a simple LLC, you are required to put yourself on payroll and pay yourself a salary.
The main reason is tax savings.
If you are a sole proprietor or LLC, all of your profit is subject to self-employment tax. With an S-Corp, only the salary you pay yourself is subject to payroll tax. The rest can be taken as a distribution, which is not subject to self-employment tax.
Not every business gets ahead with this election. If your profit is below about $60,000, the extra costs of running payroll and filing additional returns may be higher than the savings.
If your business consistently brings in more, especially into the six figures, the S-Corp election can lower your tax bill in a noticeable way.
Texas has no state income tax, which means you only deal with federal rules. You still file the election with the IRS, but you do not have to file a separate state tax form.
Ask yourself a few questions:
If yes, then 2025 may be the year to make the election. Talking with a CPA early in the year helps you get the full benefit.
