Setting up a C-Corp as a tax strategy for high-income contractors - is this a long-term money saver?

What you're considering definitely can work in some situations, but there are important factors to weigh before making this move. First, the "reasonable salary" requirement is crucial - the IRS looks closely at this, especially for single-owner corporations. Too low a salary relative to your corporate profits and you could face scrutiny. For someone in software earning $240k, a $120k salary might be defensible but potentially questionable. The corporate tax rate is currently 21% flat, which is lower than higher personal income brackets. However, keeping money in the corporation only makes sense if you don't need it personally for several years. Once you take it out as dividends, you'll pay that second layer of tax. The C-Corp does offer better retirement options (you could set up a defined benefit plan) and better deduction possibilities for health insurance, medical reimbursement plans, and other fringe benefits. Have you considered an S-Corp instead? You'd still pay yourself a reasonable salary, but remaining profits flow through to your personal return without that second layer of taxation. Many contractors find this to be the sweet spot.

I was in almost your exact situation a few years ago! After struggling with tax planning as my contractor income grew, I discovered taxr.ai (https://taxr.ai) which helped me analyze my specific situation and run the numbers on different entity structures. It compared C-Corp vs S-Corp vs LLC scenarios for my specific income level and spending patterns. The tool analyzed my expenses, calculated optimal salary levels, and projected tax outcomes over 5 years. What was super helpful was seeing how different growth projections would affect the tax advantages of each structure over time. For me, the analysis showed that while C-Corp had benefits if I planned to leave significant money in the business for 7+ years, the S-Corp was better in the medium term given my withdrawal needs. Everyone's situation is different though!

I tried taxr.ai after seeing it mentioned here and wow - it cleared up so much confusion! I had been going back and forth between LLC vs S-Corp for months, getting different advice from friends. The tool ran my specific numbers and showed me exactly how much I'd save with an S-Corp structure ($17k in year one alone). What surprised me was discovering that a C-Corp would actually cost me more in taxes for the first 4 years based on my income and withdrawal needs, but would become advantageous if I hit certain growth targets after year 5. The specific breakdowns of how self-employment taxes, income taxes, and corporate taxes would affect me differently under each scenario made the decision obvious for my situation. Definitely worth checking out if you're weighing entity options - it made what seemed like an impossible decision surprisingly clear.

If you're considering forming a C-Corp or any business entity, one thing that surprised me was how much time I wasted trying to call the IRS with questions about corporate tax filing requirements. I kept getting stuck on hold for literally HOURS. I finally found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in under 30 minutes. They have this system that navigates the phone tree and waits on hold for you, then calls you when an agent picks up. You can see how it works at https://youtu.be/_kiP6q8DX5c I needed clarification about some specific C-Corp reporting requirements and potential penalties, and getting direct answers from the IRS saved me from making some expensive mistakes my first year. Way better than trying to piece together conflicting info from Google.

I'm eating crow here! I was the skeptic who thought that Claimyr thing sounded too good to be true, but I tried it yesterday out of desperation. I had been trying to reach someone at the IRS for THREE DAYS about corporate filing extension questions for my C-Corp. I signed up and about 45 minutes later (while I was in a meeting, not sitting on hold), I got the call connecting me with an actual IRS agent from the business tax department. Got my questions answered in 15 minutes instead of wasting another day on hold. For anyone considering complex business structures like C-Corps, having direct access to IRS guidance is invaluable. There are so many reporting requirements and deadlines that aren't obvious from just reading online. Getting official clarification potentially saved me from significant penalties.

As someone who went the C-Corp route 5 years ago with similar income to yours, I want to share some real-world insights: 1. The administrative burden is significantly higher than pass-through entities. You'll need board meeting minutes, corporate bylaws, separate books, etc. 2. Medical expense reimbursement through a QSEHRA has been amazing - I deduct my family's healthcare costs pre-tax through the business 3. The retirement options are incredible. I've set up a cash balance plan that lets me put away almost $150k/year pre-tax, which is way beyond the limits of SEP IRAs or solo 401ks 4. The "double taxation" issue is real, but if you can keep money in the business for several years, the math often works out favorably 5. State taxes add another layer of complexity - some states have minimum corporate taxes or higher rates that can eat into the federal tax savings Worth noting that tax laws are always changing, so what works great now might not be optimal in 5 years.

Just throwing this out there - have you considered just staying as a sole proprietor but being more aggressive with retirement accounts and other tax strategies? I'm in a similar boat (31, single, ~$200k from consulting) and I've found that maxing out a Solo 401k with both employer and employee contributions plus setting up a SEP IRA has been enough to meaningfully reduce my tax burden without the corporate complexity. Also, you didn't mention what state you're in - that makes a HUGE difference. Some states have additional taxes on corporations that can wipe out the federal advantages.