💼 Should Your LLC Elect S Corp Status? The Tax Perks Are Real—But Don’t Forget Estate Planning
Launching a small business in Texas? Forming an LLC is the go-to move. But if you’re generating decent profits, you may be leaving money on the table if you don’t consider electing S Corporation (S Corp) status.
While the tax benefits can be substantial, there’s one critical thing many business owners forget: proper ownership structure for estate planning purposes. If you die and your LLC isn’t structured correctly, your loved ones may end up stuck in probate—even if everything else is perfect.
This blog walks you through:
- The pros and cons of an LLC
- When (and why) to elect S Corp status
- A FICA tax-saving example
- Essential estate planning moves to avoid probate
- How Mike Massey Law can help you do it right—in just 1 to 3 business days
🧾 Step 1: Forming an LLC in Texas
An LLC (Limited Liability Company) gives you limited personal liability, operational flexibility, and straightforward tax treatment.
✅ Pros of an LLC
- Shields your personal assets from lawsuits
- Flexible pass-through taxation
- Simple setup and minimal formalities
- Great for solopreneurs or family-owned businesses
❌ Cons of an LLC
- All profits are subject to self-employment (FICA) tax
- No built-in tax flexibility unless you make a special election
🔄 Step 2: Electing S Corp Status
An LLC can elect to be taxed as an S Corporation by filing IRS Form 2553—giving you the chance to legally reduce your self-employment taxes.
✅ S Corp Benefits
- Major FICA tax savings
- Still enjoys pass-through tax treatment
- Keeps liability protection in place
❌ S Corp Tradeoffs
- Must run payroll and issue W-2s
- Additional IRS scrutiny
- Must file a separate 1120-S tax return
- Requires a reasonable salary to be determined by a CPA
- Slightly more paperwork and formality
💰 Real-World Tax Savings Example
Example:
Your LLC earns $120,000 per year in profit.
If taxed as a regular LLC:
- Entire $120,000 is hit with 15.3% self-employment tax = $18,360
If you elect S Corp and pay yourself a $60,000 salary (as an example):
- You only pay FICA on the $60,000 salary = $9,180
- The remaining $60,000 is a distribution not subject to FICA
- You save $9,180
Just remember:
- Payroll processing and CPA costs may be ~$1,000–$1,500/year
- You must stay compliant with quarterly filings and annual tax returns
⚙️ Step-by-Step: LLC Formation + S Corp Election + Estate Protection
Here’s what the full plan looks like:
✅ 1. Form Your LLC
Mike Massey Law can usually get your LLC legally set up within 1–3 business days. When people try to do it themselves, we often see delays of several weeks or more waiting on the Texas Secretary of State to issue a certificate of formation.
✅ 2. Create a Strong Operating Agreement
If you’re the sole owner, you still need one. It helps:
- Establish S Corp compliance
- Prevent disputes
- Set up death and disability provisions
✅ 3. Elect S Corp Status with the IRS
File Form 2553 within 75 days of formation or by March 15th of the year you want it to apply.
Your CPA should double-check your timing and eligibility.
✅ 4. Get an EIN
Apply online at IRS.gov—it’s fast and free.
✅ 5. Set Up Payroll
Choose a payroll provider (like Gusto or ADP or Patriot or whomever) and:
- Pay yourself a reasonable salary
- Withhold FICA and income taxes
- File W-2s and quarterly forms
Let your CPA help set the correct salary level.
✅ 6. Avoid Probate: Tie Your LLC to Your Estate Plan
This is the step most business owners miss—and it can be costly.
If you die and your LLC is owned only in your name, it will go through probate.
To avoid that:
- Own your LLC in the name of your Living Trust, OR
- Name your Living Trust as the beneficiary upon death
- This can be done via language in your Operating Agreement, or
- A Transfer on Death Resolution tied to your LLC membership
✅ We handle all of this for our clients—making sure your business fits smoothly into your estate plan.
🧠 When You Might Not Want to Elect S Corp Yet
- If your profits are under a certain amount, for example, $40,000/year (but check with your CPA)
- If you’re not ready to run payroll
- If you’re in a high-growth phase and reinvesting every dollar
- If you’re not working with a CPA yet
🧾 How We Help
At Mike Massey Law, we make the complex feel easy. You get:
- LLC formation in 1–3 business days typically
- Operating agreement (optional and extra fee)
- Optional estate planning integration with Living Trusts
- Flat, transparent pricing
✅ Final Thoughts
Forming an LLC is smart. Electing S Corp status can be even smarter—but only if you do it with eyes wide open.
And don’t forget the big picture: structure your LLC correctly inside your estate plan now, or your family could face delays, probate court, and added legal bills later.
📆 Book a Consultation Now
🌐 Secure Your Business + Estate at mytxwills.com
⚠️ Disclaimer:
This blog is for informational purposes only and does not constitute legal, tax, or accounting advice. Reading this blog does not create an attorney-client relationship. Please consult a licensed CPA or attorney in your jurisdiction before taking action.
