Most owners walk in with the same number in their head: 15.3%.
That is the self-employment tax rate on a sole proprietor's profit, and a sole proprietor pays both halves, because there is no employer picking up the other side. On $150,000 of net profit that comes to a little over $21,000 in Social Security and Medicare tax before a single dollar of income tax. Nobody enjoys writing that check.
The S-corp election is the standard fix. You pay yourself a reasonable salary through payroll. The salary gets hit with FICA like any other wage. The rest of the profit comes to you as a distribution, and distributions do not carry self-employment tax.
Pay yourself $80,000 out of that $150,000 and the FICA bill falls from about $21,000 to about $12,200. Roughly $9,000, saved.
That is the version of the story you will find in every article written on the subject. Here is the rest of it.
Where the arithmetic actually lands
You do not get to choose the salary. It has to be reasonable for the work you actually do. Pay yourself $30,000 out of a business that throws off $150,000 and you have not built a tax plan, you have built a tax problem. There is a whole body of case law on reasonable compensation and the IRS has won most of it. So the question is not "what is the lowest number I can defend." It is "what would I have to pay someone to do my job?" Answer that honestly and you are most of the way there.
Then the S-corp gives back part of what it saved.
Two things it takes back
The QBI deduction is the first one. Under Section 199A you deduct up to 20% of qualified business income, and wages paid to you reduce QBI. In that same example the deduction shrinks by roughly $15,000 when you move from sole proprietor to S-corp, and at a 24% marginal rate that is about $3,500 of the savings gone. Not fatal. But real, and the "save 15.3%" version never mentions it.
The second is overhead. Payroll processing runs $40 to $100 a month in most cases. Your return goes from one form to two, and the 1120-S costs more to prepare than the Schedule C did. Payroll has to actually be run, on real dates, with real deposits, which means books that stay current. Arizona does not tax an S-corp at the entity level, but there is state paperwork, and the elective pass-through entity tax is worth running through in the years when the federal deduction for state taxes is pinching you.
Add it up honestly and an S-corp election usually lands somewhere between $3,000 and $9,000 a year in savings at $100,000 to $250,000 of profit. Below about $60,000 of net profit the fixed costs eat most of the benefit, and I will usually tell an owner to wait a year.
The March 15 deadline
Form 2553 generally has to be filed within two months and fifteen days of the start of the tax year you want it to cover. For a calendar-year business that is March 15. Miss it and you are looking at next January, or at asking the IRS for late relief. There is a late-relief procedure that rescues a lot of people. It is not something to plan around.
One more thing. If you are a 2% shareholder, health insurance stops being a quiet pre-tax benefit. The premiums get treated as wages on your W-2. You still get the deduction, but it shows up in a different place and it changes the payroll math, and somebody is surprised by it every year.
When the answer changes
Above roughly $201,750 of taxable income for a single filer, or $403,500 married, the 199A wage and property limits start phasing in, and the wages you pay yourself can start helping the deduction instead of hurting it. Same election, different arithmetic. That is a planning conversation, not a rule of thumb.
Run both numbers before filing the form. And if the salaries are not being processed every month, the whole arrangement is a liability with a due date on it.
The short version: an S-corp election is not a switch that saves you 15.3%. It is a trade. Self-employment tax on one side, payroll cost, an extra return, and a smaller QBI deduction on the other. Below about $60,000 of profit, the trade usually is not worth making yet.