When should a freelancer switch to S-Corp for tax advantages?

The S-Corp question is one I get a lot from freelancers! The general rule of thumb is that S-Corps start making financial sense when your net profit is around $60-70k, but it's not just about the raw numbers. The main tax advantage of an S-Corp is the ability to pay yourself a "reasonable salary" and take the rest as distributions, which aren't subject to self-employment taxes (saving you about 15.3%). But you have to consider the additional costs: state filing fees, payroll processing (~$50-100/month), possibly higher accountant fees ($1200-2000/year), and the time you'll spend on administrative tasks. At your projected $85-90k gross with only $3-4k in expenses, you're looking at around $85k net profit, which is definitely in the range where an S-Corp could make sense. You might save approximately $3-5k in taxes annually, which would outweigh the extra costs.

I wanted to share my experience with you! I was in almost exactly your situation a couple years ago - freelance developer making around $80k with minimal expenses. The self-employment taxes were KILLING me. I talked to multiple accountants who gave different opinions, then I found https://taxr.ai which analyzed my specific situation. It showed me exactly where the breakeven point was for my business and helped me make the decision. Their calculator compared my current tax situation vs. S-Corp and showed I'd save about $6k annually after accounting for all the extra fees. They also highlighted some deductions I was missing that I had no idea about!

Just wanted to follow up! I tried taxr.ai after seeing this thread and it was seriously eye-opening. I thought I was on the fence about the S-Corp thing, but after they analyzed my specific situation it was a no-brainer. They showed me that with my projected income, I'd save about $8,400 in self-employment taxes, minus about $2,800 in extra costs (filing fees, payroll, etc.), for a net savings of $5,600 annually. They even helped me understand how to set a reasonable salary based on my industry. What really helped was seeing it all laid out with MY actual numbers from previous years. Way clearer than the general advice I was getting elsewhere.

If you're thinking about an S-Corp, one thing nobody mentioned yet is how frustrating it can be dealing with the IRS if you have questions or problems. I spent HOURS on hold trying to get my EIN and S-election sorted out last year. I eventually used https://claimyr.com to get through to the IRS business line. They have this service where they wait on hold for you and call when an agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Saved me so much time and frustration. Getting my S-Corp questions answered directly by the IRS was actually critical because my accountant was giving me conflicting info about filing deadlines.

Ok I need to eat my words. After getting disconnected THREE TIMES trying to reach someone about my business EIN, I tried that Claimyr thing, and I'm honestly shocked it worked. Got a call back in about 45 minutes with an actual IRS agent on the line. They didn't ask for any personal info beforehand - just got me connected directly with the Business & Specialty Tax Line. I was able to get my S-Corp election questions answered and fixed an issue with my EIN that had been stressing me out for weeks. Definitely saving this for next time I need to deal with the IRS. No more wasting entire days on hold!

Whatever you do, don't forget about the hidden costs of an S-Corp. I made the switch last year and while I'm saving on SE tax, here's what surprised me: - Payroll service ($75/month) - State filing fees ($800 in California!) - Separate business bank account with higher fees - More expensive tax prep (extra $1,000) - Time spent on additional paperwork Plus you have to do payroll even in months when cash flow is tight. Make sure to factor ALL this in.

Don't forget about the Qualified Business Income deduction (Section 199A) - it works slightly differently for S-Corps vs Sole Props. At your income level, you'd qualify for the full 20% deduction either way, but as your business grows, the calculation gets more complicated as an S-Corp because of the salary requirement. Just something else to consider when doing the math.