Last Updated: June 10, 2024, 9:38 am by TRUiC Team


How to Start an S Corp as a Security Guard

An S corporation (S corp) is an Internal Revenue Service (IRS) tax classification that may help your security guard business save money on its taxes. Security guards usually work in one of two ways: companies either hire them to work temporary events or work permanently for a specific location or business. It’s a security guard’s responsibility to assess potential threats or dangers in their work environment and enforce the rules accordingly. 

If you elect S corp status for your security guard business, it could potentially save thousands of dollars a year at tax time.

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

Security guard standing outside of a building.

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 security guard 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. 

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Don’t have a formal business structure? If your security guard 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 Security Guards 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. This means your salary must be similar to what someone else would earn for doing the same work. Finding a reasonable salary appropriate for you will take some research, but online resources like Glassdoor and the US Bureau of Labor Statistics can help simplify this process.

The average salary of a security guard in the United States is $34,380 per year, according to Glassdoor. This figure can change based on your experience, location, and if your business works contracts for temporary events or exclusively for one location or client. It’s important to account for these factors when doing your research.

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 Security Guard 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.

Security Guard Information

Clients hire security guards to monitor and patrol locations, report on any concerning issues, and intervene when necessary. They can work in all sorts of places — from museums to music festivals. While some clients hire these professionals to work only a single event, other companies hire them as permanent security employees. 

While demand for security guards can exist anywhere, they’re most common in large cities and urban areas with a higher density of wealth and companies that seek protection. Estimates vary on how many security guards currently work within the United States, but the total likely falls somewhere between 800,000 and 1.1 million.

Why Most Security Guard Businesses Should Have a Legal Business Entity

Registering your business as a legal business entity will make it appear more legitimate to potential clients. Because you protect the property of other people, making them feel more comfortable with your business can help you foster long-term partnerships and repeat clients.

Legal business entities also give their owners and employees liability protection in the event of a lawsuit. For example, let’s say that while your business runs security for a music festival, someone breaks into a performer’s dressing room and steals their property. Both the venue and performer try to sue you over this. They could only take the business itself to court, which means your personal assets aren’t on the line in a settlement.

Is an S Corp Right for My Security Guard Business?

Many factors can influence if electing S corp status will benefit a business. For example, S corps must run payroll for all of their employees. This would even apply if you’re the owner and only employee. The additional cost of running payroll may pose an issue for some businesses, making this tax designation unobtainable. If you already run payroll, though, this requirement won’t be a problem or cost you anything extra.

You also need to think about your shareholders when making this decision. To become an S corp, your business can have no more than 100 shareholders. While this may seem restrictive to some companies, others won’t have a problem staying below that number. If this limit seems like an issue for your business, it may be better off as a C corp.

In addition, you’ll have to decide if you want to take a distribution — a portion of a business’s profits that go directly to its owner. The IRS requires S corp owners to take a distribution on top of their reasonable salary, and you’ll need to take at least $10,000 in order to fully benefit from the tax savings of an S corp. If your business could benefit from reinvesting that money into new equipment or other priorities, then you may want the IRS to tax it as an LLC instead of electing S corp status.

Only you, as the owner, can decide if it makes sense to elect S corp status for your business. Take some time to go over this material and see whether or not this tax designation will fit with your vision for your business.

Security Guard S Corporation Examples

No two security guard businesses are the same so electing S corp status won’t suit all of them. Below is an example of a business that could benefit from S corp status and one that won’t. Use them to help you determine if this will prove advantageous for your business.

Scenario 1:

Let’s say you have 10 years of experience as a security guard and opened your own security business four years ago. Your business consists of you and seven other employees: six guards and one person who schedules appointments and meetings with new clients. A local accounting company runs payroll for you. 

While your past work focused on temporary positions and events, you recently won a contract from a local mall to handle its security. Two of your guards will now work at the mall each day while the rest handle your business’s other jobs.

As long as you remain content with this situation and limit your shareholders to fewer than 100, this security business would be a good candidate for S corp status. Just make sure to take your distribution.

Scenario 2:

At the other end of the spectrum, imagine you run a small security business consisting of you and three other security guards. Since opening your business a year ago, you’ve done contract and temporary work for events and companies within 50 miles of your business. 

You currently run payroll, but don’t have a formal office and instead run your business from your home while scheduling your workers yourself. Ideally, you’d like to hire someone to handle the paperwork for you and get an office to house your business. 

This business isn’t a perfect candidate for S corp status. While it does run payroll, the money you, as the owner, would have to take in a distribution that could be put toward hiring someone or investing in office space. Moreover, if you’re actively seeking investor money, limiting your shareholders isn’t a wise strategy.

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.

Security guards in the United States earn an average of $34,380 per year, according to Glassdoor. This number will vary by location and experience with more experienced security guards — as well as those working in urban areas — commanding higher pay. Remember, some security guard positions are for contract or freelance-style work so pay may fluctuate based on if you work in the same places or at different events each time.

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.

No. You must specifically file paperwork with the IRS to elect S corp status for your business. To learn more and access the forms, visit the IRS website.

As an S corp owner, you must take your annual distribution yourself so you don’t have to wait to receive it at a specific time. Just remember to claim it on your return so you don’t take it more than once per year.