Summary of What This Blog Covers
- Self-employed individuals often overpay in self-employment taxes.
- Electing S Corp status can reduce your tax burden.
- The strategy works best once net income exceeds $80,000.
- With the right CPA, the switch is simple and strategic.
The Problem: You’re Doing the Work, But the Tax Bill Feels Like a Punishment
Let’s start with something honest.
If you’re reading this, chances are you’ve built something real. You’ve taken the risk of entrepreneurship. You’ve moved from idea to income. You’ve served clients, invoiced, delivered, and likely sacrificed more than most people see.
And now it’s tax season.
You’ve opened up your accounting software or maybe just your checking account and tried to make sense of it. You’re proud of your income, but confused by what you owe. You did everything you thought was right: you kept receipts, paid your quarterlies (as best you could), and still…
You’re facing a tax bill that feels disproportionate to your growth. You’re being told to pay 15.3% self-employment tax, before your income tax is even calculated. The numbers don’t seem to align with the story of how hard you worked or how tight your margins were at times.
And now you’re wondering: Is there something I’m missing?
You’re not alone. And you’re not doing it wrong.
This blog is written for that exact moment. Not to guilt you, not to flood you with jargon but to walk with you through this one, specific pain point with clarity, empathy, and a clear solution.
Because there is a smarter way to structure your business taxes and it’s far more accessible than most entrepreneurs realize.
Let’s unpack it together.
Why Self-Employment Tax Hits Harder Than You Expect
First, a quick breakdown of what’s happening behind the scenes.
If you’re a sole proprietor or single-member LLC who has not made any tax elections, the IRS considers you a disregarded entity. That means your net business income passes through to your personal tax return.
Simple enough. Until you learn that all of your net profit (every dollar you earn, after expenses) is subject to self-employment tax, which is currently 15.3%.
That 15.3% covers:
- 4% for Social Security
- 9% for Medicare
Unlike W-2 employees, who have half of this tax paid by their employer, you’re paying both halves as the business owner and the employee.
So if you earn $100,000 in profit, that’s $15,300 in self-employment tax, before you even start calculating your federal income tax. For many entrepreneurs, this comes as a surprise especially if it’s your first year with significant earnings.
It can feel discouraging. And more than that, it can make you question whether your business is financially sustainable in the long term.
This is the moment when many business owners pause and ask, “Is there a better way to structure this?”
And the answer is yes.
It’s called the S Corporation election, and it could be a turning point in how you manage your income, your tax liability, and your confidence as a business owner.
Understanding the S Corp Solution: What It Really Means
Let’s slow down and clarify something up front.
S Corp is not a business entity. It’s a tax classification.
This means you don’t have to be incorporated in some complicated or costly way to access it. You can start as an LLC, which many small business owners do, and then elect to have your LLC taxed as an S Corporation.
When you make this election, something powerful happens. The IRS begins to treat your business income in two parts:
- A reasonable salary, which is subject to payroll taxes (just like a W-2 job)
- Owner distributions, which are not subject to self-employment tax
Here’s why this matters:
By splitting your income, you reduce the portion of your earnings that’s hit with the 15.3% self-employment tax.
It’s not a loophole. It’s not a workaround. It’s a legitimate, IRS-approved method of reducing tax liability that exists to help business owners like you structure their income in a sustainable, smart way.
And once you understand how it works, the question becomes not if, but when to make the change.
Real Numbers, Real Impact: A Case Study
Let’s walk through a simplified example.
Imagine Maya, a freelance interior designer in Austin. She earns $120,000 in net income from her business.
As a Sole Proprietor:
- 100% of that income is subject to self-employment tax.
- Maya pays $18,360 in self-employment tax (15.3% of $120,000).
- She also owes income tax on the full amount.
As an S Corp:
- Maya pays herself a reasonable salary of $60,000.
- She pays self-employment tax only on her salary ($9,180).
- The other $60,000 is considered a distribution, not subject to self-employment tax.
- Total savings: $9,180
Now, this doesn’t mean she avoids tax entirely. Maya still owes income tax on the full amount. But the self-employment tax savings are real and measurable.
Multiply this by the next five years of her business, and that’s over $45,000 saved. Money she can invest in retirement, new hires, a home, or simply a more stable financial future.
This is the turning point we help clients navigate at Insogna every day.
The Sweet Spot: When to Elect S Corp Status
One of the most important factors is timing.
The S Corp structure isn’t for everyone especially if you’re just starting out. With low income, the costs and complexity can outweigh the benefits. But once you hit a certain income threshold, the savings start to make sense.
As a general guide:
- If your net income is under $60,000, stay with sole proprietorship for now.
- If your net income is $80,000 or more, it’s time to run the numbers seriously.
- If you’re consistently earning over $100,000, you’re likely leaving significant money on the table without an S Corp election.
But this isn’t just about thresholds. It’s about momentum.
Is your business growing? Are your earnings becoming more predictable? Do you have the bandwidth or the support team to take on structured payroll?
That’s where strategic planning makes all the difference and where we step in as your partner.
But Wait, Doesn’t This Add Complexity?
Yes, it adds structure. But complexity? Not when you have the right guidance.
With S Corp election, you’re now required to:
- Pay yourself via W-2 payroll
- File quarterly payroll reports
- File an annual Form 1120S
- Maintain corporate compliance
But these aren’t barriers. They’re simply parts of running a mature business and with the help of a certified public accountant, or a tax preparer near you who understands small business strategy, these steps become manageable.
In fact, our clients at Insogna often say,
“I thought this would be overwhelming, but it’s not. It feels like I’m finally running my business like a real company.”
We handle payroll setup. We file the right forms. We stay ahead of deadlines. So you don’t have to worry about surprise penalties or missed opportunities.
We believe structure shouldn’t feel like a burden. It should feel like a step toward stability.
Retirement Planning: An Often-Overlooked Bonus
Here’s something many business owners miss:
With S Corp status, your ability to save for retirement and lower your tax burden in the process increases dramatically.
As an S Corp owner, you can:
- Open a Solo 401(k) or SEP IRA
- Contribute both as an employee and employer
- Deduct your contributions, lowering taxable income
In 2025, total contribution limits for Solo 401(k)s are:
- $69,000 under age 50
- $76,500 with catch-up contributions for those 50+
We’ve seen clients contribute tens of thousands to their retirement accounts tax-deferred, all while reducing their annual tax bill.
And yet, without an S Corp, those contribution options are more limited and often go unused.
This is why your tax structure is not just about April 15. It’s about preparing for the future you’re working so hard to build.
Common Misconceptions That Keep Business Owners Stuck
Let’s name the fears that keep people from taking this step:
“I don’t make enough yet.”
We hear this often. And for some, it’s true. But we’ve helped business owners save thousands once they hit $80,000 in profit. Don’t assume, run the numbers with a licensed CPA.
“This seems risky or confusing.”
It’s new, but it’s not risky when done right. The IRS provides this structure as a solution, not a trap. With the right accountant, you’ll stay fully compliant and supported.
“I’ll get audited if I do this.”
S Corps are no more likely to be audited than sole proprietors. In fact, they often result in cleaner books, clearer payroll, and better documentation.
This is your sign to move past fear and into informed decision-making.
What Makes Insogna Different?
We’re not just here to file your taxes and send you on your way.
At Insogna, we:
- Offer year-round strategic guidance, not just seasonal forms
- Provide personalized S Corp assessments and tax planning
- Walk you through every step from LLC formation to S Corp election, payroll setup, and beyond
- Coach you like a partner, not just a service provider
You’re not just another file. You’re a business owner with real goals, real stressors, and real questions. And our job is to turn those questions into clarity and that stress into strategy.
Ready to See If S Corp Status Can Save You Thousands?
We get it. Taxes are rarely the thing you looked forward to when starting your business. But they don’t have to be the part you dread.
You deserve to feel prepared. To understand your numbers. To look at your business and know that it’s structured to support not drain your growth.
Whether you’re new to the idea or have been wondering about it for years, we’re ready when you are.
Contact Insogna today for a personalized S Corp tax checkup.
Let’s walk through the numbers. Let’s explore what’s possible. Let’s make sure you’re keeping more of what you’ve worked so hard to earn.
This is the kind of clarity you deserve and the kind of partnership we offer.