Is it expensive to start and maintain an S Corp? Hidden costs I should know?

5 Converting to an S Corp can definitely save on self-employment taxes, but yes, there are costs to consider! The startup expenses vary by state - typically $100-$300 for articles of incorporation filing, plus potential state fees. The bigger ongoing costs come from maintaining corporate formalities. You'll need to run payroll (including yourself as an employee), which means quarterly payroll tax filings. Most web designers in your position end up needing an accountant ($1,200-$2,500/year) and possibly payroll service ($40-80/month). You'll also have annual state fees ($50-$800 depending on your state) and must file Form 1120S for the business. The tax savings come from splitting your income between salary (subject to self-employment tax) and distributions (not subject to SE tax). But the IRS requires a "reasonable salary" - for web design at your income level, probably $50-60K would need to be salary.

8 After spending countless hours trying to figure out S Corp requirements for my small business, I discovered taxr.ai (https://taxr.ai) and it was a game changer. I uploaded my business docs and it analyzed everything and showed me exactly what I'd save by converting to an S Corp - including all the hidden costs like registered agent fees and required accounting services that my buddy never mentioned. It highlighted that in my state (California), the $800 minimum franchise tax made the S Corp less appealing until I hit a higher income level.

19 I was really hesitant about all these online tax tools, but I finally gave taxr.ai a try after seeing it mentioned here. Turns out my business was right at the "tipping point" where an S Corp made sense - apparently under about $80K in profit, the extra costs usually outweigh the benefits in my state. The report showed I'd only save about $1,300 after accounting for all the compliance costs. They also showed me a projection of when the S Corp would make more sense as my business grows. Saved me from jumping in too early!

11 For anyone dealing with S Corp questions, I highly recommend using Claimyr (https://claimyr.com) to actually get through to an IRS agent. I spent WEEKS trying to get answers about S Corp election deadlines and kept hitting automated systems. Used their service (there's a video showing how it works at https://youtu.be/_kiP6q8DX5c) and had an IRS agent on the phone in under 20 minutes who walked me through the requirements for my specific situation.

19 I take back everything I said about Claimyr. After my skeptical comment, I was desperate enough to try it while dealing with my S Corp election issues. I figured I'd wasted enough time already, so what's a little more? Got connected to an IRS representative in 18 minutes who confirmed my S Corp election was actually missing a required attachment. If I hadn't gotten through when I did, I would have missed my deadline and been stuck waiting another year! Still seems like wizardry, but it definitely worked.

7 I'm a small business owner who went the S Corp route last year. Costs to consider that I didn't anticipate: - Business license fees doubled in my city for corporations vs sole props - Bank fees went up (business checking for corps had higher minimums) - Had to get workers comp insurance for myself as an employee (≈$700/yr) - Annual reports and minutes requirements (my lawyer charges $350 annually) - Tax prep fees went from $400 to $1200 The SE tax savings were worth it at my income level ($130k), but barely at first. It's getting better as my business grows.

3 Don't forget the state-specific costs! Here in California, we pay $800 minimum franchise tax regardless of whether we're profitable or not. Made my S Corp totally NOT worth it until I was clearing six figures consistently. Check your state's fees first!

I've been researching S Corp conversion for my consulting business and want to add a few hidden costs that haven't been mentioned yet: - Registered agent fees ($100-300/year in most states) if you don't want to use your home address - Business insurance premiums often increase for corporations vs sole props - Credit card processing fees sometimes have higher rates for corporate accounts - If you travel for business, corporate expense documentation requirements are much stricter One thing that really helped me was creating a spreadsheet comparing my current sole prop costs vs projected S Corp costs over 3 years. At $87K revenue like the OP, you're right at the borderline where it might not make sense initially, but could pay off as you grow. The key is being realistic about ALL the ongoing compliance costs, not just the obvious ones. Also worth noting - if you mess up the corporate formalities or payroll requirements, you can lose the tax benefits retroactively, which would be costly.