S Corporation Tax Strategy for Texas Small Business Owners
Trusted guidance for small business owners and individuals
Gray & Associates CPA provides proven S Corporation strategies, accurate tax preparation, and proactive planning to help clients save money and stay compliant. From Lago Vista to Austin and across Texas, we deliver disciplined, detail-oriented service backed by 30 years of experience.
Understanding S Corporations in Texas
What is an S Corporation?
An S Corporation is a federal tax election available to eligible corporations and LLCs; it is not a separate legal entity type. Electing S status allows profits to pass through to the owners, avoiding corporate-level income tax while maintaining liability protection at the entity level. For Texas owners—where there is no personal state income tax—the focus is on federal treatment and careful compliance.
Why use the S Corporation tax strategy
This strategy helps save self-employment tax by paying the owner a reasonable salary (subject to payroll taxes) and taking remaining profit as distributions (generally not subject to self-employment tax). The result can be significant S Corp tax savings when profits exceed the cost of payroll and compliance. Our role is to confirm whether the numbers work for your situation and execute the details correctly so the savings are durable.
Our S Corp Strategy Services
A disciplined, end-to-end process for small business tax savings
Personalized savings projection
We review your prior returns and current profit to model scenarios for S Corp Texas owners. You receive a plain-English estimate of expected savings and the break-even point before making a decision.
Entity and IRS election filing
We form a Texas corporation or align your existing LLC, then prepare and file the S election with the IRS on proper timelines. All paperwork and certified mailings are handled so nothing is missed.
Payroll setup and procedures
We establish payroll for owner-employees and set up deposit and filing calendars. Clear procedures keep withholding, quarterly reports, and year-end W-2s on schedule.
Books, records, and compliance rhythm
We organize clean bookkeeping categories, establish officer minutes, and outline franchise tax requirements. Simple checklists keep monthly and annual tasks predictable.
Tax return prep and deadlines
We prepare the S Corporation return and coordinate owner K-1 reporting, estimated taxes, and extensions when needed. Deadlines are mapped at the start of the year to avoid last-minute surprises.
Ongoing advisory and annual review
Each year we revisit reasonable compensation, profit levels, and cash flow to keep the structure aligned. When circumstances change, you receive clear options and next steps.
Reasonable Compensation Requirement
Setting a defensible salary that fits your role
“Reasonable compensation” is the salary an independent employer would pay for the work you actually perform. We evaluate duties, time spent, skills, industry norms, and regional pay data to establish a figure that is both compliant and practical. Documenting the basis is as important as the number, so we create a written rationale and retain supporting materials. As profits and responsibilities change, Gray & Associates CPA revisits salary levels to balance IRS expectations with ongoing S Corp tax savings.
Frequently Asked Questions
Clear answers for Texas owners considering an election
How does an S Corp save taxes for my business?
The structure separates owner compensation into two streams: wages and distributions. Wages are subject to payroll taxes, while properly characterized distributions generally are not, which reduces overall self-employment tax when profits are strong. Savings depend on your net income, the salary required for your role, and compliance costs. We model the numbers so you can see the expected outcome before electing.
Should I elect S Corp status in Texas if my profit varies?
Owners with consistent profit above a practical threshold typically benefit most because savings scale with distributions. If income fluctuates, we test several profit levels and timing options—sometimes waiting until a new tax year produces a cleaner, more favorable result. When profits are modest or irregular, the cost and effort of payroll may offset benefits. Our guidance focuses on the year you are likely to cross the break-even point.
What is a reasonable salary for an S Corp owner, and how is it determined?
A reasonable salary reflects the market rate for the services you provide, considering responsibilities, hours, qualifications, and local pay data around Austin, Cedar Park, Leander, and similar markets. We assemble those factors into a documented methodology that can be explained if ever questioned. Underpaying invites scrutiny; overpaying can erode savings. The right figure threads that needle and is reviewed annually as your role evolves.
Can my existing LLC make the election, or do I need a new corporation?
Most Texas LLCs can retain their legal structure and elect to be taxed as an S Corporation by filing the appropriate IRS form. Others may prefer forming a new Texas corporation first and then electing S status; both paths can work with proper timing. We evaluate ownership, eligibility, and deadlines to choose the cleaner route for your situation. All filings, acknowledgments, and payroll onboarding are handled so the transition is orderly.
Will the S Corp affect my other deductions, like the 20% QBI deduction?
Salary you pay yourself does not qualify for the QBI deduction, while qualified pass-through income typically remains eligible subject to income limits and industry rules. The overall result compares payroll tax savings against any QBI changes to determine whether the S Corporation provides a net benefit. For many profitable owners in Texas, the balance still favors an S Corp when salary is set appropriately. Our projections show both sides of the ledger so you can choose confidently.
