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


How to Start an S Corp as an Interior Decorator

An S corporation (S corp) is an Internal Revenue Service (IRS) tax classification that may help your interior decorator business save money on its taxes. Interior decorators use their sense of style to make rooms safe, functional, and visually appealing for their clients. 

Regardless of how long your interior decorator business has been operating, it could potentially save thousands of dollars each year in taxes 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.

Interior decorator looking through swatches.

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 interior decorating 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 interior decorating 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 Interior Decorators 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. S corp owners must pay themselves a “reasonable” salary, which is what someone else doing the same work would earn. Determining this can require some research, so check out online resources like Glassdoor and the US Bureau of Labor Statistics to find average salaries and pay scales on which to base your reasonable salary.

As of March 2023, the average salary of an interior decorator in the United States is $51,544. This can vary, however, based on your level of experience and location. On average, interior decorators in cities and large urban areas make more than those in rural locations due to the higher overall cost of living in metropolitan areas. Remember to account for your location and experience when researching a reasonable salary for yourself.

Distributions

Unlike with a 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 Interior Decorator 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.

Interior Decorator Business Information

Interior decorators are consultants who help their clients find the right style, furniture, and whatever else they may need to bring their vision for their rooms and indoor spaces to life. They pride themselves on bringing rooms together with the right lighting, decorations, and other details — whether it’s in a home or business. 

While it’s possible to succeed in this field anywhere, most interior decorators work in or near big cities because these areas have a larger potential client pool. Nearly 140,000 interior design and decorating businesses operate within the United States based on data from January 2023.

Why Most Interior Decorator Businesses Should Have a Legal Business Entity

The main reason you should register your interior decorating business as a legal business entity is that it’ll protect your employees from liability if someone ever takes legal action against your business. 

For example, let’s say you and another employee accidentally drop a shelf and damage a client’s vintage vehicle while bringing them some samples to review. The client sues you over the damages because no one makes replacement parts for the vehicle. While this client can sue your business, they can’t sue you as an individual thus protecting your personal assets.

Legal business entities also enjoy greater legitimacy. Having a formal business structure will make your business seem more legitimate, which will make potential clients more likely to hire you.

Is an S Corp Right for My Interior Decorator Business?

You should consider several factors before deciding to elect S corp status for your business. Think about the requirements listed below as compared to how your business currently operates as well as the long-term goals you have for your interior decorating firm.

First, an S corp must run payroll for all of its employees. This includes businesses in which the owner is the only employee. Businesses with multiple employees likely already run payroll so this won’t be a large concern. Smaller businesses, on the other hand, may find this expense more than they’re ready to pay and might make S corp tax advantages appear less appealing.

The IRS also limits S corps to a maximum of 100 shareholders. The number of shareholders a business has will vary based on its circumstances, and your business may fall well below this limit. But, a C corp will be a better fit for your interior decorating business than an S corp if you plan to grow your shareholders beyond 100.

Per the IRS, S corp owners must take a distribution of their business’s profits in addition to their reasonable salary. To fully benefit from the tax advantages of S corp status, you’ll need to take $10,000 or more. Electing S corp status won’t suit those who’d prefer to reinvest that money back into their business. But, if you have no issues taking this amount of money and also meet the other requirements, you should look into electing S corp status for your business.

Interior Decorator S Corporation Examples

Not all interior decorating businesses will benefit from S corp status. Here are two examples to help illustrate which types of interior decorators should elect this tax designation.

Scenario 1:

Imagine you run an interior decorating business on the outskirts of a large city that includes you and five other employees. You run payroll already and, since you opened three years ago, your business has grown with dozens of clients keeping you and your team busy nearly every week. 

You’ve become close with your shareholders in this time and don’t plan to grow further than the 20 you already have. You also completed renovations on your office earlier this year and you don’t foresee a need to make any major investments. 

This business likely will benefit from the S corp tax designation — at least for the time being. It meets all the requirements, and you could retain S corp status until you need to make some serious changes.

Scenario 2:

Now, imagine you run a smaller interior decorating business all by yourself. You handle all of the appointments and client requests on your own. You live near the border of a tri-city area, and a variety of homeowners and businesses within 50 miles have hired you. 

As much as you enjoy your work, it’s starting to become too much to handle solo. Within a year, you’ll need to hire some employees to help you and find a space large enough to hold all of them. Rather than leasing an office, you’re thinking of building a structure on your property for your business. 

This business should hold off on electing S corp status. While you may qualify later because you’ll have to start running payroll for your new employees, the growth you want will require a good deal of money. As such, reinvesting your profits in your business will make more sense for you right now than taking a distribution.

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.

Glassdoor puts the average salary for an interior decorator in the United States at $51,544. This can vary, though, depending on your level of experience and where you work. Make sure to research how these variables will affect you before committing to a reasonable salary.

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. You must run payroll for anyone who works for you regardless of how long you employ them.

No. Your business can generate any amount of income as long as it’s enough to cover the cost of running payroll, your distribution, your reasonable salary, and any other business expenses.