Wyoming LLC Owners Are Electing S-Corp Status at the Wrong Time. Here's How to Know When You're Ready

The Wyoming LLC is set up. Your business is generating real money. And at some point, the S-corp election starts looking like the obvious next move.

Some of my clients come to me asking whether they should flip the switch. My answer is almost always the same: slow down. Let's look at the numbers first.

The first thing to understand is that when you elect S-corp status, you're not changing your entity. Your Wyoming LLC stays exactly what it is: legally, on paper, in every practical sense. What you're changing is how the IRS sees you at tax time. That's it.

The reason anyone does this is because of self-employment tax. Right now, if you're a single-member LLC taxed as a sole proprietor, every dollar of net profit gets hit with a 15.3% self-employment tax on top of ordinary income tax. That's the number that gets people's attention.

With an S-corp election, you split your income into two buckets: a salary (which gets hit with payroll taxes) and distributions (which don't). That split is the sweet spot where the savings live.

But here's where I have to be honest with you.

The threshold nobody talks about

The savings are real. The costs are also real.

Running payroll, filing quarterly reports, paying for additional bookkeeping, higher tax prep fees, state compliance and so many other costs aren't free. In most cases I've seen, if your net profit isn't consistently clearing around $50,000, those costs eat up most or all of what you save.

I say consistently because that word matters more than the number itself.

I've watched people have one great year, $80K, $100K, whatever it was, and immediately want to restructure everything around it. Then revenue drops the next year and the structure that was supposed to save money is now just costing it.

An S-corp is a long-term tax strategy. It works when your income is stable, trending upward, and you're confident the profitability isn't a one-time thing. It doesn't work as a reaction to a good quarter.

The part where the structure works against you

If you elect S-corp status, you are legally required to pay yourself a reasonable salary. Not a token amount. Not something your accountant pulls out of thin air. A salary that reflects the actual work you do, at a rate someone in your field and market would earn for doing it.

I've seen people try to pay themselves $15,000 while taking $180,000 in distributions. The IRS has a name for that: it's called an audit trigger. The strategy only works when it's structured correctly, with a salary you can genuinely defend.

Let's clear up the Wyoming piece specifically

Wyoming is a great state to form an LLC. As I stated in my previous article, I recommend it for the right reasons: privacy, asset protection, low fees, minimal bureaucracy. Those are real advantages.

What Wyoming doesn't do, and I want to be direct here, is change your federal tax obligations. It doesn't lower your self-employment tax. It doesn't affect how a reasonable salary is calculated. And if you live and work in California, Texas, New York, or anywhere else, Wyoming doesn't make that state disappear from your tax picture.

I talk to people regularly who think forming in Wyoming creates some kind of tax shelter. It doesn't. Your taxes are determined by where you live, where you work, and how your income is structured, not by where the LLC was registered. 

So when is the right time?

When net profit is consistently above $50,000 and growing. When the projected savings (run with real numbers, not optimistic ones) clearly outpace what payroll and compliance will cost you. When you can support a reasonable salary and your income isn't likely to fall off a cliff next year.

When is it the wrong time? When income is inconsistent, when you're under the threshold, or when the decision is based on what sounds right rather than what the numbers show.

When the timing is right, the S-corp election is one of the most effective tools a Wyoming LLC owner has. When it isn't, it creates costs that are easy to underestimate and harder to undo. The difference between the two usually comes down to one honest conversation about your numbers.

If you want to know where you stand, reach out and book a meeting with me. I'll show you the math before you make the move.

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