Last Updated: June 10, 2024, 9:41 am by TRUiC Team


How to Start an S Corp as an Influencer

An S corporation (S corp) is an Internal Revenue Service (IRS) tax classification that may help your influencer business save money on its taxes. Influencers use their charisma and social media expertise to entertain their fans in various ways.

Whether you just created your account or have a massive fan base already, you could potentially save thousands of dollars each year by electing S corp status.

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

Influencer recording her makeup routine.

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 influencer 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 influencer 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 Influencers 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 must consider the salary you pay yourself as “reasonable” or, in other words, equivalent to what someone else doing your work would earn. Online resources like Glassdoor and the US Bureau of Labor Statistics can help you find an appropriate pay range or averages to assist with your research.

It can prove tricky to determine a reasonable salary for influencers because they typically receive inconsistent wages. If you create content for a YouTube channel, for example, your income will largely come from the Google AdSense program. This can alter how much you earn based on current trends and guidelines. In contrast, an Instagram influencer may earn a majority of their income from sponsorships that pay a different amount each time.

According to Glassdoor, a social media influencer’s average salary in the United States is $47,009. Your chosen platform(s), ability and willingness to do sponsorships, and support from your fan base on platforms like Patreon will greatly impact this number. Finding a reasonable salary will definitely require some research before you can commit to a figure with confidence.

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 an Influencer 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.

Influencer Business Information

Influencers use their social media savvy to entertain their fans. They come in many forms — from online shows, modeling, and streaming to other assorted entertainment methods that use social media platforms. 

While people can do this kind of work from just about anywhere, the highest concentration of professional influencers live in or near cities because those locations tend to offer more networking opportunities and better internet service. An estimated 793,000 influencers currently work professionally in the United States.

Why Most Influencer Businesses Should Have a Legal Business Entity

Liability protection is the main reason you should register your influencer business as a legal business entity. If a third party ever wants to sue you, they’ll have to take your business to court instead of you as an individual. 

For example, let’s say you create video essays and a company that sells meal kits sponsors you. A fan tries the kits, falls ill and needs hospitalization, and tries to sue both your sponsor and you for promoting the company’s products to them. If this lawsuit makes it to court, only your business will be on trial — not you. That means a court could only take your business’s assets if it finds you in the wrong vs. your personal assets.

Is an S Corp Right for My Influencer Business?

Only you can determine if turning your influencer business into an S corp will prove advantageous. Think about your business’s long-term goals while considering the criteria below.

One major requirement is that an S corp must run payroll for all of its employees. This may be costly for an influencer who doesn’t earn a consistent income — especially if you operate your business by yourself. Some influencers have teams that support them, including editors and assistants, so may already run payroll and consider this a nonissue. Just remember that you’re an employee even as the owner, and the money you save on your taxes as an S corp may not exceed the cost of running payroll.

Per the IRS, S corps can have a maximum of 100 shareholders. This likely won’t be a problem because few influencers have shareholders beyond the largest in their respective platforms. Still, if this seems like an issue, your business may fare better as a C corp.

The IRS also requires S corp owners to take a distribution from their business’s profits in addition to their reasonable salary. In order to fully benefit from the tax advantages of S corp status, you’ll need to take at least $10,000. Some owners may prefer to reinvest that money in their business instead of taking it for themselves. If that sounds like you, you’ll benefit more from leaving your business as an LLC than electing S corp status.

Influencer S Corporation Examples

Not all influencer businesses will benefit from electing S corp status. Here are two examples to help illustrate which types of influencers should consider choosing this tax designation.

Scenario 1:

Imagine you’re a fashion influencer who primarily uses Instagram. You regularly perform photoshoots to show off different trendy styles and outfits of your own design. Given your soaring popularity, you frequently get sponsorships from clothing companies that ask you to promote and post photos of yourself wearing their clothes. In addition to the clothing, these companies pay you for each post you make as long as they approve them. These opportunities come in regularly enough that you’ve reduced your hours at your regular job and can comfortably cover rent and other expenses for a few months now. 

The business in this scenario likely would have no issue becoming an S corp. With no shareholders and no real need to reinvest your profits in your business, you could easily take a distribution. The only potential hang-up involves running payroll, but you’d be in a good position to elect S corp status if you’re willing to pay for that.

Scenario 2:

Now, imagine you’re a video game streamer who primarily streams on Twitch. You recently started editing your gameplay and posting highlights on YouTube for some extra revenue. You’ve done all the work by yourself since you started, streaming and editing when you get home from work and on your days off. 

While you’d really like to do this work full-time, you need to put in some effort before you can do so. Aside from needing to ensure you’ll remain financially stable, you also must upgrade your computer so it can play newer games and run better editing software. In addition, you need to purchase the latest video game consoles so you don’t miss a new popular release as well as a better capture card so you can create higher-resolution, more professional streams. 

S corp status probably won’t be a great fit for this business. While you won’t have to worry about exceeding the 100-shareholder limit, the money you’d have to take as a distribution could be better spent on the technology upgrades you want to make.

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.

Because influencers make inconsistent pay and focus on many different areas, there’s no easy metric for determining a reasonable salary. Glassdoor puts the average salary of a social media influencer at $47,009 per year. You should use this number as a reference vs. a firm target because influencer salaries can range anywhere from $10,000 to nearly $200,000. 

Make sure to do some research before diving in and looking at the different revenue-generating methods you can use for what you hope to do.

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. Any money you make from Patreon will count as self-employment income on your taxes.

No — at least not in the traditional sense. While your patrons may influence what you do with your business with their payments, neither the IRS nor any other official entity considers them as actual shareholders.