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


How to Start an S Corp as a Painting Company

An S corporation (S corp) is an Internal Revenue Service (IRS) tax classification that may help your painting company save money on its taxes. Painters can work in many different formats — from freelance artists who work on commission, to large studios that paint pieces for city planners or companies for advertising purposes. 

No matter how long your painting company has been in business, it may 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.

Painting company painting the outside of a house.

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 painting company 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 painting company 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 Painting Companies 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. To qualify as an S corp, a business’s owners must pay themselves a “reasonable” salary. In other words, this salary must be equivalent to what someone else doing the same work would earn. To help you determine an appropriate salary or pay range, online resources like Glassdoor or the US Bureau of Labor Statistics can provide average salaries and other factors that can affect overall pay.

Because painters can work in several different kinds of jobs, it’s important to choose a reasonable salary that reflects your painting company’s focus. For example, the average annual salary of a house painter in the United States is $38,460 while a painting contractor earns an average of $51,189 per year. Decide on the services your business will offer, and then find a salary that comfortably reflects that work. Your experience and location also can impact pay so remember to account for these factors when doing your research.

Distributions

Unlike 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 Painting Company 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 LLC’s 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.

Painting Company Information

Painters have an easy-to-understand job: they paint for clients who hire them. That being said, their work can take on many forms. They can be freelance or contract artists who work on commission, professional artists and art gallery workers who bring their works to the public, or professionals who paint houses and other buildings, among other options. 

While demand for painters exists everywhere, many seem to work in cities and locations near the West Coast and East Coast regions of the United States. While data from January 2023 estimates the country has more than 410,000 employed painters, this number constantly fluctuates because many kinds of painters work seasonal jobs.

Why Most Painting Companies Should Have a Legal Business Entity

Registering your painting company as a legal business entity will lend some legitimacy to your work, which can help you attract more clients. Because painting companies often rely on referrals to get more work, having a formal business structure may mean the difference between a client putting their trust in you or choosing one of your competitors.

The most important reason painting companies become legal business entities is that doing so offers their employees liability protection in the event someone sues the business. Let’s say you run a house painting business, for example, and a client parks their vehicle near your ladder as you work. Your paint can falls, smashes through their windshield, and damages the dashboard. If they attempt to sue, they can’t take you as an individual to court. Only your business would face the legal risk of losing its assets.

Is an S Corp Right for My Painting Company?

You should consider several factors to determine if electing S corp status is a good fit for your painting company. 

First, does your business currently run payroll or is it willing to start? The IRS requires S corps to run payroll for all of their employees, including the owner. This may not be an issue for some businesses that already run payroll or pay for accounting services to do so. But, it can represent an unnecessary expense for smaller businesses trying to save as much money as possible. 

You also need to think about your business’s shareholders. S corps can have a maximum of 100 shareholders. Exceeding this limit will immediately disqualify you from this tax designation. If this number seems too small for your business or where you see it going, becoming a C corp likely will work better for your company than electing S corp status.

Lastly, S corps must distribute part of their profits directly to their owners. On top of their reasonable salary, an owner must pay themselves a distribution — ideally $10,000 or more to reap all the tax benefits of an S corp. If that sounds fine to you, then move ahead with the filing process. If you’d rather put that money back into your business, you may find it more beneficial to have the IRS tax your company as an LLC.

Painter S Corporation Examples

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

Scenario 1:

Imagine you’re a painter who runs an art gallery. In addition to hosting exhibitions of your work and that of others, you also do contract work for your city. This involves painting murals and art pieces used by the city planners and local government to beautify the area. 

Your art gallery employs three painters, including yourself, as well as three part-time workers who handle the phones and clean the building. All of your employees are on your payroll, and you have a satisfied board of 50 shareholders. 

This painting company would be a good candidate for electing S corp status as long as you remember to take a distribution and set yourself a reasonable salary.

Scenario 2:

Now, let’s say you’re a painter who does commission work through the internet. You create custom paintings for individuals through an Etsy store in addition to selling some of your other pieces through the same store. Upon completion, you mail the paintings to your customers. 

You’re the sole employee, and you have no strong desire to start working with others in your business. Your only real goal is to upgrade your equipment and workspace within your home in the next few years. Specifically, you want to build a packing station in your home to save some costs on mailing these oversized paintings and buy a high-end computer with a drawing tablet so you can also create digital art. 

The S corp tax designation likely won’t prove advantageous for this company. Why? You’ll likely find it costly to run payroll for just you, and you’ll want to put any extra money you make toward your packing station or new computer rather than taking it as 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.

Because there are so many different kinds of painters, there’s no set salary for that broad job description. For example, a painting contractor earns an average of $51,189 per year while a house painter’s average salary is $38,460. Make sure to use your painting specialty when doing research on salaries.

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. However, that’s not recommended. While you can take whatever amount of money you want for your distribution, you should aim to take at least $10,000 in order to fully benefit from electing S corp status. 

No. Your business can operate as an S corp anywhere. Whether you run your company from home, in an office, or even as an online business, you can file to become an S corp as long as you meet all of the criteria.