Summary of What This Blog Covers:
- Key tax differences between Schedule C and S-Corp structures
- How S-Corp status can cut self-employment taxes
- Compliance requirements for running an S-Corp
- When to switch and how Insogna makes it seamless
Let’s cut right to it. You’ve got a business. It’s growing. Maybe you’ve hit your first six-figure year. Maybe you’re right on the cusp. Either way, you’re not here to donate more to the IRS than you legally have to. And yet, here you are. Filing Schedule C like it’s still your freshman year in business school.
Let’s make something crystal clear: how you structure your business taxes isn’t just a formality. It’s a strategy. One that, if done right, can mean keeping thousands more in your business. And if done wrong? Well, the IRS is always happy to cash the check.
You don’t need to be a tax expert. That’s our job. But as your CPA, your advisor, your fellow business-builder, it’s our duty to give you the real talk. So, welcome to Schedule C vs. S-Corp. Starring you, your money, and the decisions that’ll shape your tax future.
Act I: Meet Schedule C — The Standard-Issue Sole Proprietor
You know this character. You probably started with them.
You hang a shingle, start accepting clients, and boom—you’re a sole proprietor by default. You file your taxes with Schedule C, tacked onto your personal Form 1040, and it’s easy. Clean. Efficient. No paperwork with the IRS upfront. No payroll software. No extra filings.
It’s the business equivalent of wearing jeans to a board meeting: perfectly acceptable at first, but maybe not the best choice as you scale.
The Breakdown:
- You earn income.
- You subtract your business expenses.
- You pay income tax and self-employment tax (15.3%) on the net income.
And yes, self-employment tax covers Social Security and Medicare because when you’re self-employed, you’re paying the full freight instead of splitting it with an employer.
Let’s say your business makes $80,000 in profit.
Under Schedule C? You’re handing the IRS $12,240 just in self-employment tax, plus income tax on top of that.
It’s not a deal-breaker. It’s just… not optimized.
Schedule C works. But it’s built for simplicity, not tax strategy.
Act II: Enter the S-Corp — The Sophisticated Strategist
Now let’s say you’re ready to move differently. You want to scale, reinvest, maybe hire. You’re not just running a business anymore. You’re building a brand. That’s when it’s time to talk S-Corporation, or S-Corp, for short.
Now, despite the name, an S-Corp isn’t a business type. It’s a tax election. You still operate as an LLC or corporation, but once you file Form 2553 with the IRS, you unlock a new way to be taxed.
Instead of paying self-employment tax on every dollar of profit, you pay yourself a reasonable salary, run it through payroll, and the rest? It comes to you as distributions, which are not subject to self-employment tax.
That’s right. You’re shifting income from “fully taxed” to “lightly taxed”—all legally, all by design.
Let’s Look at the Numbers:
Say you’re pulling in that same $100,000 in net profit.
- You decide to pay yourself a salary of $60,000.
- You run that through payroll. It gets taxed at 15.3%. That’s $9,180 in self-employment tax.
- The remaining $40,000? Distribution. No payroll taxes.
Your total tax savings? Around $6,120.
Multiply that by a few years, and you’ve got your next investment round, team hire, or six-month marketing campaign funded.
Act III: The Fine Print — What the IRS Cares About
Now, before you go skipping down the S-Corp trail with dollar signs in your eyes, there’s some important nuance.
Because here’s the thing: the IRS loves S-Corps… until you abuse them.
That’s why they require:
1. Reasonable Salary
You can’t pay yourself $10,000 and call the rest a distribution. The IRS expects your salary to be in line with what someone in your industry and role would reasonably earn. Undershooting that is the fastest way to end up with an audit.
2. Payroll Compliance
You’ve got to actually run payroll. That means withholding taxes, issuing yourself a W-2, and filing quarterly payroll reports. If that sounds overwhelming, relax. We handle that for our clients all day long.
3. Separate Business Tax Return
Once you go S-Corp, you file Form 1120-S, the official S-Corp return. You’ll also need to issue a K-1 to yourself, reporting your share of the income.
In other words, you’ve graduated to the big leagues. And with that comes more paperwork but also much bigger rewards.
When to Make the Move (and When to Wait)
We won’t sugarcoat it. S-Corps are not for everyone.
If your profit is under $50,000, the costs of payroll, extra filings, and admin may not justify the tax savings. You’re probably better off sticking with Schedule C until you grow.
But once you’re clearing $60,000–$75,000 in net profit consistently? It’s time to have that S-Corp conversation.
And if you’re pushing $100K+? It’s borderline malpractice not to be looking at it.
We’ve helped businesses save $8,000 to $15,000 per year just by restructuring. That’s not theoretical. That’s cash flow.
Real Talk: What Business Owners Love (and Hate) About S-Corps
What They Love:
- Major tax savings.
- More professional structure—which appeals to investors, banks, and high-ticket clients.
- Better options for retirement planning and owner benefits.
What They Hate:
- More admin work (but again, we take care of this at Insogna).
- The stress of “doing it wrong” and triggering IRS trouble.
- The added complexity of splitting income and managing payroll.
That’s why most of our clients aren’t going it alone. They’ve got us handling their filings, running their numbers, and making sure they get the upside without the downside.
Bonus Scene: What About State Taxes and Franchise Fees?
Here’s the twist no one tells you: your state might want a piece of the action.
- In California, S-Corps owe a $800 minimum franchise tax, no matter your income.
- In Texas, there’s no income tax, but you’ll still need to file an annual franchise tax report.
Each state plays by its own rules, which is why “googling tax help near me” isn’t enough. You need someone who knows the laws, the forms, the strategy and, ideally, someone who doesn’t ghost you come April.
Insogna is one of the firms with the most trusted Austin accountants, and we work with clients across the U.S., giving each one the high-touch, high-skill support they deserve.
Final Act: Choose Your Structure. Choose Your Future.
Here’s the truth: Your business structure is a tool. Like a good brand, a loyal client, or a killer sales page, it works for you but only if it’s set up right.
Schedule C is the beginner’s mode. It’s fast, cheap, and flexible.
S-Corp is the upgrade. It takes more planning, but it’s built for profit, professionalism, and long-term growth.
And the best part? You don’t have to figure this out alone.
Let’s Run the Numbers Together
At Insogna, we don’t just do taxes. We design strategy.
Our team of CPAs, enrolled agents, and certified public accountants near you will:
- Analyze your current numbers.
- Estimate your potential tax savings with an S-Corp election.
- Handle your Form 2553 and get your payroll set up.
- Keep you compliant with federal, state, and franchise tax filings.
From QuickBooks self-employed integrations to 1099s, W-2s, and everything in between, we make sure your business is built to scale with less stress, more confidence, and a whole lot more left in your pocket.
Ready for Your Encore?
It’s not about choosing a form. It’s about building the business you want to run, with the income structure to match. The IRS will take what you give them but smart business owners know how to give just enough.
Let’s run the numbers and see what makes sense for your next move. Book your free tax structure consult with Insogna today.