Last Updated: June 6, 2024, 2:59 pm by TRUiC Team


How to Start an S Corp as a Dog Breeder

An S corporation (S corp) is an Internal Revenue Service (IRS) tax classification that may help your dog breeding business save money on its taxes. Dog breeders breed dogs, care for puppies, and get them ready for adoption. 

Whether your dog breeding business just opened or has been operating for years, it can save thousands of dollars each year if it’s eligible to become an S corp.

Recommended: Save yourself the hassle and use a professional service like ZenBusiness to help you handle the initial S corp election paperwork.

Man with dog.

What Is an S Corporation?

An S corporation (S corp), also known as Subchapter S, is a tax status with strict IRS requirements and restrictions. If your business meets the requirements to be taxed as an S corporation, you will be eligible for certain tax benefits such as pass-through taxation and self-employment tax savings, which can be significant. 

Essentially, an S corporation provides the perfect opportunity for business owners to have both the benefits of a default LLC with pass-through taxation and some of the perks of a C corporation without the dreaded double taxation.

S Corp Requirements

In order to be taxed as an S corporation, your dog breeding business must meet the following requirements:

  • Has 100 shareholders or less
  • Is a domestic LLC or corporation
  • Issues only one class of stock
  • Shareholders are US citizens or permanent resident aliens
  • Is owned by private individuals

What Type of Business Structures Can Start an S Corp?

An S corp designation can be elected by a formal business structure, specifically an LLC or a corporation. Informal business structures such as sole proprietorships and partnerships are not eligible for the S corporation classification. 

How to Start an LLC Tip Icon

Don’t have a formal business structure? If your dog breeding business isn’t currently an LLC or C corporation, our friends at ZenBusiness can form your legal business entity for you and elect S corp tax status in no time.

S Corp Tax Benefits Dog Breeders Should Know About

S corporations enjoy certain tax benefits, such as pass-through taxation (all losses and profit — credits, distributions, deductions — pass directly to the owner). This is similar to how default LLCs are taxed. With pass-through taxation, all profits bypass the company and go directly to the owners, and owners pay on their personal tax return at their regular income tax rate.

Default LLC Taxes Explained

Business owners of default LLCs pay self-employment taxes and income tax on the distributions passed down to them. In other words, both types of taxes are imposed on all the money they receive after paying business expenses. Self-employment taxes include social security and medicare, and these two taxes.

S Corp Taxes Simplified

With an S corporation, owners are classified as employees and are paid in two ways: a salary and distributions.

Reasonable Salary

Since owners are employees, they must receive a salary, and therefore they must run payroll. Business owners pay self-employment taxes and income tax on their salaries. The IRS requires S corp owners to pay themselves a “reasonable” salary — the equivalent of what someone else doing the same job would earn. To help you determine a salary that’s reasonable for you and your business, check out online resources like Glassdoor and the US Bureau of Labor Statistics to find salary averages and pay ranges.

The average annual salary of a dog breeder in the United States is $54,224, according to data from Glassdoor. This can vary based on your level of experience and location so remember to account for that when determining your reasonable salary.

Distributions

Unlike with the reasonable salary, the owner only pays income tax on the distributions. This means the business owner does not pay the self-employment tax of 15.3% on money taken as a distribution.

When Should a Dog Breeder Elect S Corp Status for a Business?

This is a subjective question and will depend on your business and your goals. You need to be sure to take enough money in distributions to benefit from the advantages offered by an S corporation and offset the additional paperwork and fee associated with running payroll. In general, you will likely benefit from S corp status once your business makes at least $60,000 in earnings and $20,000 in annual distributions. These numbers are after paying business expenses. The IRS requires S corp owners to pay themselves a reasonable salary to ensure they aren’t lowering their compensation to avoid paying more on taxes — which would lead to loss of S corp status, fines, and even business dissolution.

Use our S Corp Tax Calculator to find out if an S corp is right for your business. Calculate your savings below:

S Corp Savings Calculator

Calculate how much you can save by choosing an S Corp tax classification

Recommended:

Are you a solopreneur looking to start your S corp or convert your existing LLC and start saving on taxes? Get your S corp started today with ZenBusiness.

Six Basic Steps to Start an LLC and Elect S Corp Status:

Step 1: Select a State

Step 2: Name Your LLC

Step 3: Choose a Registered Agent

Step 4: File the Articles of Organization

Step 5: Create an Operating Agreement

Step 6: Get an EIN and File Form 2553 to Elect S Corp Tax Status

Step 1: Select Your State

Step 2: Name Your LLC

If you don’t already have a business, you will first need to form one. You will need to provide your state with a unique name that is distinguishable from all registered names when you file your LLCs formation documents.

Our Business Name Generator and our How to Name a Business guide are free tools available to entrepreneurs that need help naming their business.

Step 3: Choose an LLC Registered Agent

Your S corp registered agent will accept legal documents and tax notices on your business's behalf. You will list your registered agent when you file your LLC's Articles of Organization.

Step 4: File Your LLC's Articles of Organization

The Articles of Organization, also known as a Certificate of Formation or a Certificate of Organization in some states, is the document you will file to officially register an LLC with the state.

Step 5: Create an LLC Operating Agreement

An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.

Our operating agreement tool is a free resource for business owners.

Step 6: Get an EIN and Complete Form 2553 on the IRS Website

An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business. 

EINs are free when you apply directly with the IRS.

Elect S Corp Tax Status

During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.

Steps to Take After Starting an S Corp

Once you formalize your S corp, be sure to get your financials in line so you are ready to begin operating.

For business banking, check out our guide on the best banks for small businesses.

If you need to build your S corp credit, read our guide on how to build business credit and get a business credit card through Divvy.

Recommended: You’ve worked hard and deserve a break! If you make at least $20,000 in distributions, let ZenBusiness start your S corp, so you can focus on your business.

Dog Breeding Business Information

As a dog breeder, you take care of a large group of dogs to keep them healthy and well-tempered so people will adopt them. Some breeders also care for abandoned or shelter dogs prior to their adoption. This kind of work usually occurs in rural areas because those locations give the animals space to run around and play away from densely packed cities and dangers like traffic. Approximately 2,000 federally licensed dog breeders currently operate within the United States.

Illegal puppy mills are a large problem across the country, so if you’re a breeder — or plan to become one — it’s crucial that you get inspected and licensed before you begin operating.

Why Most Dog Breeding Businesses Should Have a Legal Business Entity

Given the many cruel breeders and illegal puppy farms in the United States, having a formal business structure will add legitimacy to your business. Potential adopters are much more likely to come to your dog breeding business if they know you run a legal business entity and have the proper licensing. Without that, you may seem like an illegal or shady operation.

Registering your business as a formal business entity also will protect you and your employees from liability if someone ever takes legal action against your business. 

For example, let’s say a customer adopts a dog from you and it falls ill on the night they bring it home. This illness passes to their other dog and they must pay large veterinary bills to treat both dogs. They attempt to sue you for selling them a sick animal as well as the unnecessary stress that caused. If your business is a legal business entity, this customer can only sue the business itself while you and your personal assets remain protected.

Is an S Corp Right for My Dog Breeding Business?

Several factors can affect whether or not electing S corp status is right for your dog breeding business. 

First, the IRS requires businesses taxed as S corps to run payroll for all of their employees. If you already run payroll for you and your employees, this won’t be an issue. On the other hand, some businesses may lack the extra funds to cover the cost of running payroll or may only have one employee. In those cases, this requirement can create an obstacle that stops a business from qualifying for S corp status.

Second, S corps may have a maximum of 100 shareholders. While this requirement will seem reasonable for some businesses, others that rely on having a large number of investors may need more than 100 to keep operating. If you think 100 shareholders won’t be enough, a C corp would be a better match for your business.

Third, S corp owners must take a distribution from their business’s total profits for their personal finances in addition to their reasonable salary. You’ll need to take at least $10,000 per year in order to fully benefit from electing S corp tax status. If you’d rather reinvest that money in your business, then the S corp tax designation may not be a great fit. In this case, your dog breeding business may be better off as an LLC.

Dog Breeding S Corporation Examples

While some dog breeders will benefit from electing S corp status, others won’t. Below are two examples of dog breeding businesses that illustrate both scenarios.

Scenario 1:

Imagine you run a licensed dog breeding business that you opened seven years ago. You have eight employees, including yourself, consisting of groomers, part-time customer service workers, and other animal handlers. For the last five years you’ve run payroll and have become very close with your few shareholders. Right now, you see little benefit in making changes to your business and want to keep things as they are.

Electing S corp status would likely suit this dog breeding business. Because you have little interest in expanding your pool of shareholders and you already run payroll for your business, the S corp tax designation could save you some money at tax time. You’d just need to remember to take your distribution and pay yourself a reasonable salary.

Scenario 2:

Now, consider you run a smaller dog breeding business all by yourself. You’re a farmer and use your land to raise the puppies and care for the other dogs. Because this is more of a side job to your farm work, you haven’t put as much time into the business as you’d like. But, you hope to expand this business in the next five or so years by hiring some other employees and maybe building an office so you don’t have to conduct business in your home. 

A business like this isn’t an ideal candidate for S corp status. Because you only have one employee, paying to run payroll may not make financial sense. Moreover, you may prefer to put the extra money you make toward construction fees for an office than a distribution. Right now, this dog breeding business would be better off having the IRS tax it as an LLC.

Start an S Corp FAQ

An S corporation (S corp) is a tax classification that an LLC or a corporation can apply for that provides self-employment tax savings on distributions.

If you already have an LLC or C corporation, you can form an S corp by filing Form 2553 with the Internal Revenue Service (IRS).

S corps offer businesses tax advantages, and owners of S corps can save thousands of dollars on self-employment taxes.

While both LLCs and S corps benefit from pass-through taxation, they are not taxed the same way.

With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax. With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.

Both LLCs and S corps benefit from a provision in the Tax Cuts and Jobs Act of 2017 that allows qualifying owners of pass-through entities to deduct 20% of qualified business income (QBI) from their tax returns. However, for S corps, the deduction doesn’t apply to profits paid out as wages.

On average, dog breeders in the United States earn $54,224 per year. This figure, which comes from Glassdoor, can vary based on a dog breeder’s location and experience level. Research pay ranges carefully to ensure you choose a reasonable salary that’s appropriate for you and your business.

A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employees' salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.

There’s no corporate tax rate for S corps. Instead, owners of S corps pay personal income tax on the company’s profits. This rate depends on each owner’s personal income tax bracket. 

In some states like California and New York, S corps may pay some form of tax at the corporate level.

Yes. As long as all of your businesses meet the requirements set by the IRS, you can elect S corp status for each of them. Just be careful not to mix any of the information because if you lose S corp status, you typically can’t reapply for it for five years.

No. You can have as many — or as few — employees as you like. Just make sure you have enough money to cover the salaries of your employees, your reasonable salary, and your distribution.