What an S-corp costs to run each year

An S-corp files its own federal return, Form 1120-S, every year, whether it made money or not, and gives each owner a Schedule K-1. It is due 15 March for a calendar year, a month before personal returns.

In New York it also files Form CT-3-S and pays a fixed dollar minimum tax based on its New York receipts. Under the 2024 instructions that is:

An owner who works in the business is an employee, so the business runs real payroll: federal and state withholding, a quarterly Form 941 and New York NYS-45, an annual Form 940, W-2s in January, and deposits on the schedule the IRS assigns.

The business also pays the employer half of Social Security and Medicare on the salary, federal unemployment tax on the first $7,000 of each employee’s wages, and New York unemployment insurance on a wage base set each year. These are the cost of the salary, and they are the same taxes the election saves on the distributions.

Most owners pay a payroll service for this, monthly. It can be done by hand, but the deadlines do not move.

An S-corp needs real books: a balance sheet that reconciles, not only income and expenses. Each owner’s basis has to be tracked, because distributions above basis are taxable and nobody tracks it for you.

Accountants generally charge more to prepare an 1120-S than a Schedule C, because there is more to it. Get a quote before you elect, not after.

In New York the business files a biennial statement with the Department of State every two years, for $9.

New York City does not recognise the S election, so a corporation doing business in the city also owes the city’s General Corporation Tax. That can change the arithmetic on its own.

The saving is the payroll tax not paid on distributions: roughly 15.3% of the profit above your salary, up to the Social Security wage base, and 2.9% above it.

Add up the costs above for your situation and compare. On a modest profit with a fair salary, the costs can take most of the saving. On a profit well above a defensible salary, the election usually pays for itself several times over.