As year-end approaches, many business owners are reviewing whether their current business structure continues to support their financial and operational goals. For some, electing S-Corporation status may offer meaningful tax advantages in the 2026 tax year. This decision becomes especially important when considering additional opportunities available through state Pass-Through Entity Tax (PTET) programs.
Proactive planning allows business owners to understand these potential benefits before the new year begins.
Potential Benefits of an S-Corporation Election
For businesses with strong net income, an S-Corporation structure may help reduce overall tax liability. This is achieved by separating income into two components:
- Owner wages, subject to payroll taxes
- Distributive profits, which may be taxed more favorably
This structure can be advantageous for many professional service providers, consultants, and other high-income sole proprietors able to support reasonable compensation requirements.
Additional Savings Through PTET Participation
In several states, Pass-Through Entity Tax (PTET) programs allow eligible businesses to pay state income tax at the entity level. This can help overcome federal limitations on state tax deductions and may create additional tax savings.
When combined with an S-Corporation election, PTET can enhance overall tax efficiency for owners whose businesses consistently generate strong profits.
Planning Ahead for the 2026 Tax Year
To be treated as an S-Corporation for the 2026 tax year, most businesses must file the election by March 16, 2026. Before making this decision, business owners should review:
- Profitability and long-term revenue expectations
- Compensation and payroll needs
- PTET eligibility requirements
- Administrative considerations
Understanding these factors early provides time to prepare any necessary adjustments ahead of the new tax year.
Supporting Your Business’s Long-Term Strategy
An S-Corporation election may provide valuable tax benefits, but it is not the right fit for every business. Evaluating entity structure as part of a broader tax and financial strategy can help owners make informed decisions and strengthen long-term outcomes.
YHB’s advisors can help assess whether an S-Election, PTET participation, or both may support your goals for the 2026 tax year. Contact us to begin the conversation.
