Consultant cuts self-employment tax with an S-Corp
This is an illustrative example of our work in entity strategy & s-corp planning. Below is the situation, how an IRS Enrolled Agent approaches it, the outcome those tools can produce, and what it means for anyone facing something similar.
The client & the challenge
A consultant clearing about $130k in profit was paying the full 15.3% self-employment tax on everything, with no strategy in place.
Situations like this rarely improve on their own. The right move is to get a licensed representative involved early, before penalties, interest, or enforcement escalate.
Our approach
We modeled the numbers, filed the S-Corp election (Form 2553), set a reasonable salary, and moved the rest to distributions.
How we build the right structure:
- 1Model the tax picture. We compare your current setup against an S-corp using your actual profit to confirm the savings justify the added payroll and compliance.
- 2Form or elect. We form the LLC/corporation and file the S-election on time (or late-election relief where needed), plus the EIN and state accounts.
- 3Set a reasonable salary. We benchmark comparable compensation so your salary/distribution split survives an IRS reasonable-compensation challenge.
- 4Run payroll & compliance. We handle payroll, quarterly 941s, W-2s, and estimates so the structure stays clean all year.
- 5Layer in planning. We add retirement plans, an accountable plan, and QBI optimization to stack additional savings on top.
The outcome
Ongoing self-employment tax savings of roughly $9,200 per year, with payroll and compliance handled for them.
Understanding Entity Strategy & S-Corp Planning
How your business is structured drives how much tax you pay. A sole proprietor or single-member LLC pays 15.3% self-employment tax on all net profit. Electing S-corporation status lets you split profit into a reasonable salary (subject to payroll tax) and distributions (not subject to self-employment tax) - often saving thousands per year.
We model the numbers before recommending anything, file the S-election (Form 2553) on time, set a defensible reasonable salary, and run compliant payroll so the savings hold up under IRS scrutiny.
Structure facts worth knowing:
- The S-corp benefit generally kicks in once net profit is comfortably above a reasonable salary (often around $40k-$50k+).
- The S-election deadline matters - but late-election relief is often available.
- An unreasonably low salary is a top IRS audit trigger; the split must be defensible.
- The 20% Qualified Business Income (QBI) deduction interacts with your structure and salary.
Frequently asked questions
LLC or S-corp - what's the difference?
An LLC is a legal entity; an S-corp is a tax election an LLC or corporation can make. Many owners keep an LLC and elect S-corp taxation for the payroll-tax savings.
How much can an S-corp save?
It depends on profit. Owners netting $120k-$220k often save several thousand to $14k+ per year after payroll and compliance costs.
Is more paperwork worth it?
We handle the payroll and filings, so you get the savings without the burden. We only recommend it when the numbers clearly justify it.
Can I elect S-corp status now for this year?
Often yes, via timely or late-election relief. We confirm eligibility and file correctly.
Key takeaways
- Outcome: $9,200/yr - saved every year.
- Handled by a federally licensed IRS Enrolled Agent, start to finish.
- Available remotely to individuals and businesses in all 50 states.
- The sooner you act, the more options you have - waiting adds penalties and interest.
This case study is an illustrative example of the type of matter we handle and how we approach it. It is a composite written for explanation, not an account of a specific client, and the figures shown are examples rather than actual client outcomes. Your result depends on your own facts and on IRS determinations, and no particular outcome is promised. See our disclaimer.
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