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By filing IRS Form 2553, Election by a Small Business Corporation, right after setting up your corporation, you can become an S corporation. The advantage to the S corporation is that it’s a flow-through taxation entity. Essentially, when profits are made by the corporation, they are not taxed at the corporate level but rather flow through to the shareholder’s personal tax return, meaning they are only taxed once.

There are a few drawbacks to an S corporation. If you’re interested in taking your company public and publicly trading shares, you’ll have to be a C corporation, but you can always elect to switch from S corporation to C corporation status once you’re ready to go public. Another drawback is that once a corporation has elected to convert to a C corporation, there’s no way to revert back to an S corporation again for five years. An S corporation can’t have more than 100 shareholders or any nonresident shareholders. As well, an S corporation can’t be owned by a traditional C corporation, a multimember LLC or many types of trusts.

But for minimizing payroll taxes, as discussed ahead, S corporation taxation is superior. And know that you can have an LLC taxed as an S corporation.