Should Creative Entrepreneurs Become an S-Corp?

Welcome to another episode of The Profitable Creative, hosted by Christian Brim, where the goal is simple: help creative entrepreneurs turn passion into profit. In this solo episode, Christian tackles one of the most misunderstood and frequently asked questions he hears from creatives.

Should I be an S-Corp?

This question comes up constantly, and for good reason. There is a lot of misinformation online, and a quick search often leaves business owners more confused than when they started. While becoming an S-Corp can save significant money in taxes, it is not a one size fits all solution. Understanding when it makes sense and when it does not is critical.

Start With the Right Foundation

When you start a business, you are not automatically operating as a separate legal entity. To create one, you must file with your state’s Secretary of State, typically forming either an LLC or a corporation. The primary reason to do this is not taxes. It is asset protection.

A properly operated legal entity separates your personal assets from your business assets. That separation only works if you treat the business like a business. Mixing personal and business funds, running expenses through personal accounts, or ignoring basic bookkeeping can completely destroy that protection.

Forming an LLC is just the beginning. How you operate it matters just as much.

What an S-Corp Actually Is

One of the biggest misconceptions is that an S-Corp is something you select when you form your entity with the state. In most states, that is not true. An S-Corp is a federal tax election made with the IRS, not a legal structure created at the state level.

To become an S-Corp, you must file IRS Form 2553 and do so on time. This form tells the IRS that your business should be taxed as a small business corporation. If the election is not filed correctly or timely, you are not an S-Corp, regardless of what you think.

Once the election is approved, it is critical to keep the acceptance letter from the IRS permanently. It is not uncommon for issues to arise years later if that documentation cannot be produced.

Why People Choose S-Corp Status

The primary reason creatives consider S-Corp status is tax savings. Specifically, it can reduce self employment taxes.

As a sole proprietor, all of your business profit is subject to self employment tax, which is roughly 15 percent before income taxes are even considered. With an S-Corp, the rules change.

If your business earns $100,000 in profit, you are required to pay yourself a reasonable salary through payroll. That salary is subject to payroll taxes. Any remaining profit flows through to you as the owner and is not subject to self employment tax.

For example, if you pay yourself a $50,000 salary, only that amount is subject to payroll taxes. The remaining $50,000 avoids self employment tax entirely. Over time, that difference can add up to substantial savings.

The Catch Most People Miss

S-Corps come with responsibility. You must run payroll, file payroll tax forms, maintain clean books, and keep business and personal finances completely separate. The IRS expects owners who work in the business to take a reasonable salary. Paying yourself nothing or an unreasonably low amount is a major audit red flag.

This is where many business owners get into trouble. They either fail to make the election properly, skip payroll entirely, or mishandle the ongoing compliance. In practice, very few people who try to manage this on their own get it completely right.

Is an S-Corp Right for You?

The answer depends on your numbers, your consistency of income, and your willingness to operate the business correctly. In some cases, the tax savings outweigh the additional cost and complexity. In others, the benefit is marginal and may not be worth the effort.

An S-Corp election should be viewed as a long term decision, not something to flip on and off year to year. That is why it is critical to analyze not just your current year, but future years as well.

Final Thoughts

An S-Corp can be a powerful tool for creative entrepreneurs, but only when implemented correctly. While it is technically possible to do everything yourself, the margin for error is high and the consequences can be expensive.

The smartest move is to work with a professional who understands both the technical requirements and the realities of running a creative business. That guidance can help you avoid costly mistakes and ensure you actually receive the benefits you are expecting.

Now, Do This!

If you want to hear the full breakdown and understand whether an S-Corp might make sense for your creative business, listen to this episode of The Profitable Creative.
👉 Listen here

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