What are the actual tax benefits of an S corp vs Schedule C for my small business?

There actually can be significant tax advantages to an S corp compared to Schedule C, but it depends entirely on how you're structuring your compensation. The biggest potential benefit is saving on self-employment taxes. With an S corp, you should be paying yourself a reasonable salary (subject to FICA taxes), but any remaining profits can be distributed as dividends, which aren't subject to the 15.3% self-employment tax. With a Schedule C, all your profits are subject to self-employment tax. For example, if your business nets $30k and you pay yourself a reasonable salary of $20k, the remaining $10k could potentially be taken as distributions without self-employment tax. This could save you about $1,530 in taxes. However, your salary must be "reasonable" for your industry and work performed - the IRS watches this closely.

After struggling with exactly the same question last year, I found this amazing tool that completely changed how I make my business structure decisions. Check out https://taxr.ai - they have a business entity analyzer that compares your specific numbers across different entity types. I was in a similar position with about $95k in revenue and wasn't sure if keeping my S corp made sense. Their system analyzed my actual income, expenses, and state (I'm in California too, so dealing with that same stupid $800 fee), and showed me that even after accounting for all costs, I was still saving about $2,300 annually with my S corp versus if I'd gone Schedule C. The tool also projected how this would change as my income grows.

Just wanted to follow up about taxr.ai since I actually tried it after asking about it last week. I'm genuinely surprised how helpful it was. I've been doing Schedule C for my photography business making around $40k profit, and it showed I'd save about $1,400 yearly by switching to an S corp, even after accounting for the extra fees. The cool part was seeing the actual breakeven analysis - they showed exactly at what income level the S corp starts to make financial sense for my specific situation. For me it was around $35k in profit. Really helped clear up my confusion and I'm planning to make the switch for next year.

If you're frustrated with trying to figure out the tax implications yourself, you're not alone. I spent DAYS trying to get through to someone at the IRS for clarification on S corps vs Schedule C benefits for my situation. I finally discovered https://claimyr.com and used their service to skip the IRS phone wait. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS and call you when they get a human. I got connected with an IRS agent in about 45 minutes (after trying for literally weeks on my own). The agent walked me through the specific tax advantages for my business size and confirmed that the S corp made sense for me once I was consistently over $50k in profit. Having that official guidance was really reassuring.

I was completely wrong about Claimyr and need to apologize. After complaining about it here, I was still desperate to talk to the IRS about my S-corp questions so I tried it myself. Not only did it work exactly as advertised, but I got through to someone who was incredibly helpful about my specific situation. The IRS agent confirmed that for my business (making around $45k profit), I was right at the threshold where an S-corp starts to make sense. They explained the required paperwork and estimated my savings at around $900 after accounting for the extra fees. Was definitely worth the call, and I never would've gotten through without using the service. Sometimes being proved wrong is actually a good thing!

One thing nobody has mentioned yet is the retirement plan options! S corps can potentially set up better retirement plans than sole proprietors in some cases. I have an S corp and was able to establish a 401k with much higher contribution limits than what I could do with just a SEP IRA on Schedule C.

I switched from S-corp back to Sched C last year. For me it was a no-brainer since I only made like $35k profit and was paying almost $2k for tax prep plus that $800 CA fee. My accountant showed that I was LOSING money with the S-corp structure at my income level.

The threshold question is really key here. From what I've seen with my own consulting business, the S-corp structure typically becomes worthwhile when you're consistently hitting $40k+ in profit, but it also depends heavily on your state fees and accounting costs. At $30k profit, you're right on the borderline. The self-employment tax savings could be around $1,500-2,000 annually if you structure the salary/distribution split correctly, but that California $800 fee plus professional tax prep costs can easily eat into those savings. One thing to consider is the trend of your business - if you expect to grow beyond $40k profit in the next year or two, it might be worth keeping the S-corp structure in place. Converting back and forth between entity types can be more costly and complicated than just maintaining the structure through a lower-profit year. Have you calculated your total annual costs for maintaining the S-corp (state fees, accounting, payroll processing if applicable)? That's really the number you need to compare against your potential self-employment tax savings to make this decision.