A: Your particular situation must be analyzed as though your business were an S-Corp. Then the results of that analysis must be compared to the results of your current situation.
How do you do that?
Here it is broken down into 5 steps:
1. Do a reasonable compensation calculation for all owner/employees.
2. Run a tax return scenario where your Schedule C sole proprietor income is S-Corp pass-through income (reduced by your reasonable compensation) and your wages are increased by your reasonable compensation.
3. Review the QBID to make sure it is being calculated correctly and that limitations are properly applied.
4. Compare the Federal and State tax results to see if there are tax savings from the S-Corp.
5. Reduce those tax savings by additional compliance costs of electing to become an S-Corp (cost of the S-Corp tax return, annual reasonable compensation calculation, AND the marginal cost of adding an employee to your payroll–this will be higher if you don't have a payroll system in place at all).
For most business owners, this task is oursourced to their accountant. It doesn't mean you can't do it, but it might save you some time and angst.
I have an S-Corp Analysis service where I do all of this for you.
Click here to get an S-Corp Analysis