S-Corporation - ENGAGE CPAs

An S-Corporation is a special kind of tax status that corporations or limited liability companies can select. You must first set up your corporation or LLC with your state, and then file Form 2553 with the IRS to elect S-Corporation status for the entity. S-Corporation status doesn't alter the business operations at all but it changes how your income is taxed.
If you own an S-Corporation, you still pay all tax on profits personally (on Form 1040), but the profits from the business are not subject to self-employment taxes, only ordinary income taxes, hence the tax savings. Self-employment taxes paid by sole props, SMLLC and partnerships are 15.3% on business income, so there are definitely savings when you elect S-Corp status.
This all seems too good to be true right? Because you're not paying into the social security and medicare programs (which is what your self-employment taxes are) the IRS requires owners of S-Corporations to pay themselves a "reasonable salary". Doing so reduces your business taxable income (which reduces your tax savings) because your salary is now a business expense, and it also ensures that you're paying into those federal programs.
If you already pay payroll to employees, this is one less hurdle because you're already set up with payroll accounts, but maintaining an active payroll can often be another administrative nightmare, at least in the beginning. The time and effort it can take to get your state account numbers, unemployment account numbers, workers comp, etc set up just to pay yourself is often a headache that small business owners don't want to deal with. It's much easier to just cut yourself a check or transfer the money to your personal bank account as you would from a partnership, SMLLC or sole prop, rather than putting yourself on payroll.
However, as the sole owner of an S-Corp, whatever you don't pay yourself in payroll you can distribute to your personal bank account, as an owner distribution. The challenge with S-Corps owned by more than one person comes when profits are distributed. Any distribution that one owner takes, must be taken by the other owner, in proportion to ownership percentage. So if Jane owns 10% of Super Jumpsuits LLC (a multi-member LLC taxed as an S-Corp), and Jess owns 90%. If Jane takes out $1,000 as an Owner Distribution, Jess is required to take out $9,000. Everyone HAS to pull money out of the business if another owner takes a distribution, and that can hurt cash flow.
The last requirement that an S-Corporation has is that a tax return must be done each year, which means tax filing fees, so make sure you factor that into your cost-benefit analysis. Every year an S-Corporation must file Form 1120S showing the income and expenses of the business. Within Form 1120S is a K-1 for each owner that shows their portion of the profit and loss for that year. That K-1 is then input on their individual tax return (Form 1040), as all tax on profits from an S-Corporation is subject to personal, ordinary income taxes.