S Corporations & Tax Savings: A Houston Business Owner's Guide

I’ve been running numbers for Houston business owners for over a decade now. The conversation usually starts the same way: a contractor, consultant, or shop owner hits $100K in profit and gets blindsided by their self-employment tax bill. That’s when they call me asking about an S Corporation.

What is an S Corporation, and How Can it Save You Money?

An S Corporation isn’t a business structure. It’s a tax filing election with the IRS. Your company stays a legal LLC or corporation, but the IRS processes your taxes completely differently.

The math is straightforward. Right now, if you’re a sole proprietor or single-member LLC, you’re paying 15.3% self-employment tax on every dollar of profit. All of it. No deductions. No breaks.

With an S Corporation election, you split your profits into two buckets. You take a reasonable salary and pay 15.3% on that. Everything else comes out as dividends, which skip the self-employment tax entirely. You still owe income tax on those dividends, but that 15.3% bite disappears.

Here’s What That Looks Like in Real Numbers

I had a plumbing contractor in Sugar Land clear $100,000 net profit last year. He asked me to run the numbers on an S Corp conversion. Here’s what the math showed.

Scenario 1: Single-Member LLC

• Self-employment tax on the full $100,000
• Total SE tax: $14,130

Scenario 2: S Corporation

• Owner salary: $60,000 (SE tax applies here)
• Dividends: $40,000 (no SE tax on these)
• Total SE tax: $8,478
• Savings: $5,652

That’s $5,652 staying in his pocket instead of going to the IRS. Same business. Same income. Different tax treatment.

You Have to Pay Yourself a Real Salary

Here’s where I see people get greedy and lose the whole strategy. The IRS requires you to pay yourself a “reasonable salary.” You can’t pay yourself $20,000 and take $80,000 in dividends when you’re clearly working full-time at an $80,000-plus value job.

If an IRS auditor looks at your return and thinks your salary is artificially low, they’ll reclassify your dividends as wages. Now you owe back taxes, plus penalties and interest. I’ve seen this cost people $15,000 to $25,000 by the time it’s settled.

Good bookkeeping prevents this. You need clean records showing income, expenses, hours worked, and what distributions you took. When the IRS sees solid documentation, they don’t push back.

How EZQ Group Can Help Houston Businesses

We set up S Corporation elections for business owners across Houston: Memorial, Pearland, the Heights, Sugar Land, everywhere. That includes filing Form 2553, setting up payroll properly, and maintaining the books you’ll need if an auditor calls.

We also do the math beforehand. If you’re making $45,000 a year, payroll costs might eat your savings. If you’re at $120,000 or higher, the tax reduction is real and worth doing right.

You’re running your business. Let me handle the tax structure. Contact us and we’ll calculate exactly what an S Corp saves you, and whether it makes sense for your situation.