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An LLC taxed as an S-Corp starts saving Florida owners money once profits exceed about $60,000 per year. This is because only the salary portion is subject to the 15.3% Social Security and Medicare tax. Below that, the added filing and administrative costs of an S-Corp outweigh the benefit. Florida has no personal income tax, so the decision is entirely a federal one.
The breakeven point is around $60,000 of profit. Below it, S-Corp costs outweigh the benefit.
Social Security and Medicare tax is 15.3% on the first $176,100 of earnings, then 2.9%.
S-Corp profits are not subject to the 15.3% tax, only federal income tax.
Florida has no state personal income tax, but an S-Corp still needs to register with the Florida Department of Revenue for reemployment tax.
An S-Corp is not a legal entity, but a tax treatment. The LLC is a legal entity and remains as such even if it elects to be taxed as an S-Corp.
A limited liability company (LLC) is a legal entity formed with the Florida Division of Corporations. It is meant to legally protect its owner(s) from people coming after their personal assets from lawsuits arising from doing business under the LLC.
An S-Corp is a federal tax election made on Form 2553, not an entity type. The company pays the owner a reasonable salary through payroll while the remaining profit is not subject to Social Security nor Medicare tax of 15.3%.
The best way to understand it is to start with understanding how LLCs work for tax purposes. Think of an LLC as a chameleon for tax purposes. It can take on up to three different colors. The first color is sole proprietorship tax treatment, which is when you own the LLC by yourself. The second color is partnership tax treatment, which is when you own the LLC with others, even your spouse. The entity is then taxed as a partnership. These two colors happen by default.
Third and last, rather than letting your LLC entity be taxed as one of the two ways described above, subject to special requirements, you could elect for S-Corp tax treatment. S-Corp elections are lucrative because of their unique characteristic of all business profits not subject to Social Security and Medicare tax of 15.3%. However, because of this benefit, the IRS requires and expects you as the owner to pay yourself a reasonable officer salary, through payroll, like a real employee, rather than taking everything as distributions, so that you don't avoid the tax entirely, but rather save on it.
Regardless of which of the three tax treatments your LLC is subject to, the income from the business is passed through to you and is reported on your personal tax return.
It is the term used for salaries S-Corp owners are required to pay themselves. The term "reasonable" means S-Corp owners are expected to pay themselves an employee-like salary based on what they would pay somebody else to do what they do in the day-to-day operations of the business. In other words, it is the market-based salary for someone with your role and responsibilities in your area today.
There is no clear-cut formula for what is reasonable. A good starting point is researching what someone would be paid in your area to perform the same roles and responsibilities, then considering that number in the context of your business. This is why it is important to document how salary was determined rather than choosing an arbitrary number.
For example, an employed doctor obviously earns well over six figures, but if a doctor just opened their own practice and the practice makes exactly $100,000 of profit in a given year, that does not automatically mean the owner must pay themselves a six-figure salary. Reasonable salary is based not only on the work performed but also on the circumstances of the business.
An S-Corp election alone can save up to $15,000 per year in Social Security and Medicare taxes. But that’s only the starting point. For higher-income owners, additional tax-planning strategies can produce $30,000, $40,000, or even more in additional tax savings and tax deferral each year.
How large of an opportunity you have depends on how much income you make, but just as importantly, your cash flow. Many of the best tax strategies require you to put cash to work one way or another. The tax code rewards you for putting those dollars back to work instead of simply taking the cash for personal use. The goal isn’t to spend money just to save taxes either, but to align tax strategies with places where your money can make you more money. It could be back into the business or elsewhere. The more cash flow you have available to strategically allocate, the more opportunities you have.
Florida has no state personal income tax, so an S-Corp election produces no state income-tax benefit. However, electing S-Corp treatment means putting the owner on payroll, which brings federal and state compliance requirements. In Florida, businesses need a reemployment tax account number by completing a Florida Business Tax Application. This is an additional step in properly setting up and maintaining payroll after making the election.
Florida LLCs also file an annual report with Sunbiz between January 1 and May 1. The fee is $138.75, with a $400 late fee if filed after May 1. Once payroll starts, reemployment tax is reported on Form RT-6 each quarter. New employers currently start at a 2.7% rate on the first $7,000 of wages per employee, or a maximum of $189 per employee at that initial rate. Additionally, depending on where the business operates, city and county business tax requirements may add another layer to worry about.
2025 rates. Assumes a $45,000 reasonable salary and $2,200 of payroll and filing costs.
2025 rates. Assumes a $75,000 reasonable salary and $2,200 of payroll and filing costs.
2025 rates. Assumes a $82,000 reasonable salary and $2,200 of payroll and filing costs.
If you already have W-2 income from another employer, add those wages to the salary you would pay yourself through the S-Corp. If the two combined put you near or above the Social Security wage cap ($176,100 for 2025), the S-Corp election is not worth it. Run the numbers before assuming the election will save you money.
S-Corporations cannot have nonresident alien shareholders. Ownership eligibility should be reviewed before the election is submitted, especially when a business has other legal entities as owners.
Using an electronic signature instead of a wet signature and not filling in the entity name and EIN at the top of pages three and four are common mistakes. Form 2553 is one of those forms where every tiny detail matters.
The lower your salary, the more S-Corp tax savings you can create on paper. But you cannot simply pick the lowest number. Your salary needs to be an amount based on the work you actually perform, what the business can afford, and what you would pay someone else to fill in your shoes.
Hiring your children can legitimately save you in taxes, but they need to actually perform work. Keep duties, hours, and compensation documented. Simply maxing their compensation up to the standard deduction is a common red flag the IRS stays on the lookout for.
One of the easiest mistakes to make is treating everything in the business bank account as available to withdraw. Once you have payroll, payroll taxes have to be deposited, if not semiweekly, then monthly. If you keep pulling too much cash, you can find yourself short when those deposits are due. Leave enough cash in the business to cover payroll taxes before paying yourself extra.
Leaving money in the business bank account does not make federal income taxes go away. Your business profits get taxed whether you withdraw the cash or leave it sitting in the business bank account. The amount of cash you take out is not what determines how much income is taxable.
Loan proceeds and profits can look the same in the bank, but they are very different for tax purposes. Business debt under an S-Corp does not increase a shareholder's basis unlike profits. Distributions beyond stock basis can trigger a taxable capital gain. Separate or identify loan proceeds on hand from profits so you don’t mistake borrowed cash for amounts you can safely withdraw.
Three different triggers make professional help worth the investment. The first is based on your profits. Savings only start to accumulate at about $60,000 in profits per year. You really don't need a CPA involved in your business when the business is still fighting to become profitable. Once profits are pointing toward $100,000 a year or have passed it, there is enough opportunity for the investment to pay off.
Second is when you are paying over $35,000 a year in federal taxes. And third is when you consistently have $3,000 to $5,000 or more per month left over after covering what you and your family need personally. There are opportunities to put those dollars to work somewhere else to avoid or delay taxes on those dollars.
Should my Florida business be an LLC or an S corp?
Your LLC cannot be an S corp, but rather, your LLC can elect to be taxed as an S corp. S corps are not alternative legal entities. Nevertheless, an S-Corp election starts to make sense once your business profits are over $60,000 per year.
At what income should I elect S corp status in Florida?
If you run a service-based business making over $100,000 in profits per year, or are on track to do so, that is when the investment is truly worth it. If you are under that, you are better off focusing on growing past six figures in annual profit than worrying about squeezing out tax savings.
What is a reasonable salary for an S corp owner?
Write down what you personally execute in the day-to-day operations of your business, then match that work to a job description. Look up what businesses in your area are paying for that role. The average of what you see is a reasonable salary to set for yourself as an S-Corp owner.
What is the downside of being an S corp?
The downside is the additional work and discipline involved. You have to set up payroll correctly and keep enough cash available to make monthly or semiweekly payroll tax deposits. You also have to file a separate Form 1120-S every year. Once the business reaches $250,000 or more in total revenue, the return will also require a balance sheet, which means your books need to be properly maintained with this in mind.
Do I pay less taxes as an S corp?
You could if your would-be market-based salary is below the Social Security wage cap. Be especially careful if you already have W-2 income from another employer, since that can drastically reduce the potential savings and make the election unworthwhile for you.
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