Summary of What This Blog Covers
- S-Corps cut self-employment taxes by splitting salary and distributions.
- They allow deductions for health insurance, retirement, and QBI.
- Proper setup helps avoid IRS issues and ensures compliance.
- Best for business owners earning $100K+ ready to run payroll.
Let’s get straight to it. Hitting six figures in your business is a major milestone. It means your ideas are working, your clients are paying, and your product or service is delivering real value. But here’s the uncomfortable truth: if you’re still operating as a sole proprietor or default LLC, there’s a strong chance you’re paying more in taxes than you need to.
A lot more.
Now, if that sounds harsh, don’t worry. You’re not alone. Most business owners don’t realize there’s a better way to structure their income—one that’s legally optimized for saving on taxes, building wealth, and scaling faster. That’s where the S-Corp (S Corporation) comes in.
At Insogna CPA, one of the leading CPA firms in Austin, Texas, we help self-employed professionals and business owners make the switch to S-Corp status when it makes sense. And when you’re earning over $100,000 in net profit? It often makes a lot of sense.
So here’s the full breakdown. Not just the benefits, but the why, the how, and what to watch out for. Let’s explore the seven ways an S-Corp can seriously reduce your tax burden and supercharge your financial strategy.
1. Reduce Your Self-Employment Tax Obligation
If you’re operating as a sole proprietor or a default LLC, every dollar of your business profit is subject to 15.3% self-employment tax. This covers Social Security and Medicare and it’s in addition to your income tax.
So if your business nets $100,000, you owe $15,300 just in self-employment tax. That doesn’t include federal or state income taxes. It adds up fast and cuts into your profits.
An S-Corp structure changes that.
With an S-Corp, you:
- Pay yourself a reasonable salary (subject to self-employment tax)
- Take the remaining profit as distributions (which are not)
This split means you’re only paying that 15.3% on your salary portion, not your total income.
Real-World Example:
Let’s say you earn $120,000 in net profit.
- As a sole prop: You pay self-employment tax on the full $120K = $18,360.
- As an S-Corp: You pay yourself a $60K salary (SE tax = $9,180) and take the rest as distributions, avoiding that additional 15.3%.
Savings: $9,180 annually. Multiply that by a few years and it’s clear, this isn’t small change.
A small business CPA in Austin can model different salary-to-distribution ratios and help you find the right structure based on your business model and industry standards.
2. Distribute Income More Strategically
Here’s the second win with an S-Corp: you get to control how you pay yourself.
- Your salary must be reasonable based on your role and responsibilities.
- Any remaining profits can be taken as distributions, which are taxed at a lower rate or sometimes not at all at the federal level in terms of payroll taxes.
This isn’t about avoiding taxes. It’s about leveraging the rules properly.
Here’s how we support this:
At Insogna CPA, our Austin accounting service helps clients:
- Determine the right salary using market data
- Set up compliant payroll
- Document reasonable compensation to defend against IRS audits
- Manage distributions to maintain cash flow and tax efficiency
That way, you’re keeping your compensation fair while minimizing payroll taxes.
3. Avoid IRS Audits by Setting a Fair Salary
Now let’s talk compliance.
The IRS knows S-Corp owners love the distribution model and they’ve cracked down on salaries that seem artificially low. If you’re making $150K and only reporting $20K as salary? That’s going to attract unwanted attention.
The fix is simple: pay yourself what’s fair.
The IRS expects your salary to reflect:
- Industry benchmarks
- Your level of involvement
- Business revenue and profitability
Working with a certified CPA near you ensures your salary meets this standard and that it’s documented properly in case the IRS ever comes knocking.
A tax advisor in Austin can also walk you through how to adjust your salary over time as your business scales, helping you stay compliant year after year.
4. Qualify for the 20% Qualified Business Income (QBI) Deduction
If you’ve heard about the QBI deduction but haven’t explored it, let’s clear it up. This tax benefit allows qualified pass-through entities like S-Corps to deduct up to 20% of their qualified business income on their personal tax return.
That’s not a typo. You could be deducting a fifth of your income from taxation—completely legally.
However, this deduction comes with conditions:
- You must be below a certain income threshold (around $191,950 for single filers and $383,900 for joint filers in 2025)
- Certain professional services like attorneys, consultants, and creatives have limitations
- Income must be reported correctly to qualify
Our team at Insogna CPA, a top-rated CPA firm in Austin, Texas, works with clients to:
- Run detailed QBI calculations
- Ensure their salary and distribution ratio supports the deduction
- Structure business income to qualify consistently year over year
5. Deduct 100% of Your Health Insurance Premiums
Let’s face it. Health insurance is expensive. As a self-employed professional, you’re footing that bill alone. But the right tax strategy can help.
S-Corp owners can deduct their personal health insurance premiums as a business expense, if they:
- Include premiums on their W-2
- Have the S-Corp reimburse them properly
This is often missed or misfiled which means money left on the table or worse, rejected deductions.
That’s why we set this up for you at Insogna CPA, making sure the deduction is:
- Filed correctly
- Supported with documentation
- Reflected properly on your payroll
This alone can mean thousands of dollars back in your pocket.
6. Max Out Retirement Contributions and Cut Taxes
Want to save on taxes while building long-term wealth?
An S-Corp makes it easier to contribute to a tax-advantaged retirement account and reduce your taxable income at the same time.
Here’s how:
- With a Solo 401(k), you can contribute as both the employee and employer
- With a SEP IRA, you can contribute up to 25% of your salary
- All contributions reduce your taxable income and grow tax-deferred
Example: If you contribute $22,500 as an employee and another $15,000 as employer through your S-Corp, that’s $37,500 in income that won’t be taxed this year.
We help clients at every income level:
- Select the right plan
- Open the account
- Align contributions with payroll
- Maximize long-term benefits
And yes, we do all the math for you. That’s the power of working with a certified professional accountant. We don’t just track your numbers, we grow them.
7. Keep More Cash in the Business for Growth
At the end of the day, taxes are the biggest expense you can control.
Every dollar you save in tax is a dollar you can:
- Use to hire team members
- Invest in marketing
- Pay down debt
- Launch a new offer
- Upgrade your tech stack
With the right S-Corp setup, you keep your overhead low, your profit margins healthy, and your cash flow more predictable.
And here’s the kicker: we help you plan that growth. As a full-service Austin accounting firm, we’re not just plugging numbers into tax software. We’re building proactive financial strategies that support hiring, expansion, and profitability not just compliance.
But Wait Is an S-Corp Right for Everyone?
Nope. And we’ll tell you that, too.
If you’re making less than $60,000–$70,000 in net profit, the costs and responsibilities of running an S-Corp (like payroll and quarterly filings) might outweigh the benefits.
You’re ready for S-Corp status if:
- Your net profit exceeds $100,000 consistently
- You’re ready to run payroll (or work with someone who does)
- You want to reduce your tax burden and stay compliant
- You’re planning to scale your business
At Insogna CPA, we don’t just push S-Corp status because it sounds good. We run actual projections for our clients. If the numbers make sense and only then we guide them through a seamless transition.
Let’s Build Your S-Corp Strategy The Right Way
When you work with a CPA certified public accountant who knows your business model, your revenue goals, and your lifestyle, you get more than just tax prep. You get a strategic partner.
We help you:
- File Form 2553 to elect S-Corp status
- Set up and run compliant payroll
- Manage distributions, deductions, and filings
- Track performance in real-time
- Avoid IRS pitfalls with proactive planning
Whether you’re searching for a tax accountant near you, need FBAR filing, or want a trusted CPA in Austin, we’ve got you covered.