What Montana coffee shop tax talk gets right - and what it misses

If you spend enough time around a Montana coffee spot, you’ll eventually hear the tax advice: 

“You should just S Corp it. You’ll save a ton on taxes.”

That advice isn’t wrong. It’s just incomplete.

An S corporation (S Corp) can reduce taxes in the right situation. But it also adds structure, compliance, and long-term implications that many people don’t factor into the conversation. 

Before electing S status, the real question isn’t “Can I save on taxes?”  It’s “Does this actually fit my business?” 

What an S Corp Really Is

An S Corp isn’t a business type; it’s a tax election.

Most Montana S Corps start as LLCs. The owner files Form 2553 with the IRS and elects to be taxed under S Corp rules instead of the default sole proprietor or partnership rules. The legal entity usually stays the same, only the tax treatment changes.

That distinction matters. An S Corp doesn’t change your day-to-day operations. It changes how your income flows through the tax system. And the benefits are narrower than most coffee-shop conversations suggest. 

Why Everyone Talks About the Tax Savings

The S Corp conversation almost always centers on self-employment tax.

Under sole proprietorship or partnership taxation, all net profit is subject to self-employment tax. With an S Corp, the owner splits income into two parts:

• A reasonable salary, which is subject to payroll tax

• Remaining profit, which generally is not subject to self-employment tax

For profitable, service-based Montana businesses - contractors, consultants, professional services, guides - this can create meaningful savings once income is consistently high enough.

And that’s the key phrase: consistently high enough. 

In our experience, the math typically starts to make sense somewhere in the $75,000–$100,000 range of consistent net profit, after expenses. once you factor in payroll, compliance costs, and the additional tax return. 

That’s not a hard rule. But it’s higher than most people expect.

The Part Casual Advice Skips Over

S Corps don’t just save taxes, they add structure.

Electing S status means committing to:

• Running payroll and issuing yourself a W-2

• Filing payroll tax forms and making timely deposits

• Filing a separate S Corp tax return each year

Payroll isn't hard with the right support, but it requires real consistency.

And here's the part many people overlook: S Corps are not for business owners who blur the lines between personal and business finances.

They work best when the business is run cleanly, with clear separation, disciplined bookkeeping, and intentional cash management.

For Montana businesses with seasonal income, construction, ag-adjacent work, and outdoor services, that structure can feel heavy during slower months when cash flow tightens. The tax savings must clearly outweigh the added discipline and cost. 

Sometimes they do. Sometimes they don’t.

Real Drawbacks to Think About

S Corps also come with limitations that rarely come up in casual conversations. Some of the practical realities include:

• Less flexibility with distributions and ownership percentages

• More complicated exits or liquidations if planning isn’t done early

• Lower reported Social Security wages may reduce future benefits

• Ongoing compliance requirements that don't disappear in slower years

None of these factors automatically disqualifies an S Corp. It's important to be aware of them upfront to avoid surprises later.

Why an S Corp Isn’t Always the Best Answer

Not every profitable Montana business needs an S Corp. In many cases, better planning happens before making that election.

Depending on the situation, smarter planning might look like:

• Adding a spouse as a partner to create additional planning flexibility

• Leveraging self-rental strategies when business owners personally own the property that the business uses

• Maximizing retirement contributions under the current structure

• Intentionally managing income timing instead of changing entities

Entity planning works best when it matches your actual numbers and real long-term goals, not internet rules of thumb.

For many service-based businesses, an S Corp becomes a strong fit at the right stage. But it's not always the first lever to pull.

The Basics of Electing S Status

If an S Corp does make sense, it must be done correctly.

That generally means:

• Filing Form 2553

• Meeting the election deadline (usually within two months and fifteen days of the start of the tax year)

• Ensuring eligibility requirements are met

• Following S Corp rules every year, not just at setup.

And while there are ways to address late elections in certain situations, it's far cleaner and more strategic to plan proactively rather than fix is after the fact.

This isn’t a one-time checkbox. It’s an ongoing compliance decision.

So… Should You Be an S Corp?

For Montana business owners with established track records, steady profitability, and service-based models, an S corporation can save meaningful money year after year when income meets the right thresholds.

For others, it adds complexity without delivering much benefit.

The right answer depends on:

• Profit level and consistency

• Cash flow and seasonality

• Growth plans and exit goals

• The discipline of your bookkeeping and financial structure

• Your long-term tax strategy

That’s where tax advisory comes in.

At Swanson Agency, we don’t default to S Corps. We carefully evaluate if an S Corp genuinely fits and improves your financial position, keeping your best interests at the center of the decision.

If you keep hearing "just S Corp it" and want real clarity on whether it's right for you, reach out to us at Swanson Agency. Let’s review your numbers and goals together, so you can make a confident, strategic decision that truly benefits your business.