When to Elect S-Corp - And Why Year-End Payroll Might Save Your Sanity
At Heartbeat Bookkeeping, we’re all about clarity, relief, and keeping your financial world beating in a steady, healthy rhythm. And when it comes to small-business taxes, there are two places where things get messy fast:
Waiting too long to elect S-Corp
Forgetting that S-Corp owners must run payroll
Let’s take the stress out of both. Here’s your clear, Heartbeat-approved guide.
Step One: Before S-Corp… You Must Be an LLC
This part gets skipped a lot, so let’s say it plainly: You must be an LLC (or Corporation) before you can elect S-Corp status. If you’re currently a sole proprietor, step one is forming an LLC — then you can choose S-Corp taxation.
The election itself is simple: The S-Corp election is just one IRS form (Form 2553), and Heartbeat can file it for you.
You sign → we file → done.
When Is It Time to Elect S-Corp?
A solid rule of thumb: If your business is consistently netting $60,000+, you’re in the zone where S-Corp status may save you thousands each year.
Here’s why:
✔ As a sole proprietor, you pay 15.3% self-employment tax on all your net profit.
Every. Single. Dollar.
✔ An S-Corp changes the tax rhythm:
• You pay yourself a reasonable salary (this portion is subject to payroll taxes)
• You take remaining profit as distributions (not subject to self-employment tax)
Same business. Smarter tax structure.
✔ But here’s the part many people miss — S-Corps come with extra responsibilities.
When you elect S-Corp status, you now must:
• File a separate business tax return each year (IRS Form 1120-S)
• Run payroll for yourself as an employee and pay payroll taxes
• Stay compliant with quarterly payroll filings
These requirements come with costs.
That’s why the $60k net-income threshold matters — your profit needs to be high enough to cover:
• Payroll taxes
• Payroll processing costs
• Additional tax filing requirements
• Paying yourself a reasonable wage
…and still leave savings on the table.
If your income is below this level, the administrative cost and payroll burden can outweigh the tax benefits.
💗 Why Heartbeat Loves Payroll (And You Should Too)
Let’s keep it honest: Draws Are Cute… But Payroll Saves You.
Draws feel easy. Payroll feels like a task.
But payroll is what:
• Keeps you compliant
• Builds in tax withholdings throughout the year
• Prevents IRS penalties
• Creates clean, audit-friendly books
• Proves you’re paying “reasonable compensation”
If you’re an S-Corp owner, payroll isn’t optional — it’s the backbone of the whole strategy.
Year-End Payroll: Your Last-Minute Lifeline
If you’ve taken draws all year and skipped payroll, don’t panic — you’re not the only one. It happens constantly. And yes, we can fix it.
Run a Year-End Payroll.
A properly run end-of-year payroll allows you to:
• Catch up on missed salary
• Withhold Federal & State taxes
• Pay Social Security & Medicare
• Reduce or eliminate underpayment penalties
• Start the new year clean and compliant
Even better: We can offset your payroll using your owner draws.
That means your cash out-of-pocket stays low, you still get the required tax withholdings, and you end the year clean, compliant, and penalty-free.
If you haven’t taken enough payroll this year, a year-end run might be your hail mary — and we make it painless.
Thinking About Electing S-Corp for 2026?
If your business is steady, profitable, and netting over $60k, you’re likely ready.
Remember:
Step one: Become an LLC.
Step two: Heartbeat files your S-Corp election for you.
Step three: Heartbeat gets you fully set up for payroll.
Step four: Enjoy the tax savings.
We guide you through all of it — the LLC foundation, the election, the payroll setup, the bookkeeping, and the ongoing support.
Ready to Get Your Business in Rhythm? We Can Help.
Your business deserves a financial system that supports you — not surprises you.
Whether you need:
• S-Corp election
• Year-end payroll
• Book cleanup
• Profit tracking
• Ongoing bookkeeping
• Or someone to take this stress ball off your plate…
Heartbeat Bookkeeping is here to keep everything steady, clear, and stress-free. Because when your books have rhythm, your entire business moves smoother.
👉 Schedule a free 15-minute consultation and let’s find your financial rhythm.
