Appreciation post: My accountant told me a freelancer in our city made over $200k last year but paid less tax than I did.

I found this out during my tax meeting yesterday when she was explaining different business structures. She said this person runs everything through an S-Corp and pays themselves a 'reasonable salary' to save on self-employment taxes. I always thought an LLC was enough. Do you think the extra paperwork for an S-Corp is worth it for a solo freelancer?

3 comments

3 Comments

blake_owens13d agoMost Upvoted

That 'reasonable salary' part is the tricky bit the IRS watches closely.

bell.jessica13d ago

Saw a tax guy talk about this on a podcast last week. He said the IRS looks at what other people in your field make for a similar job. Like if you're a plumber running an S-Corp, they check what employed plumbers in your area earn. Paying yourself way less than that is a red flag. They want to see a real wage before the profit distributions kick in.

the_ben13d ago

My old tax guy always pushed me to stay as a sole prop, said the S-Corp fees weren't worth it. But seeing the math on a $200k income, the self-employment tax savings alone could easily cover the extra accounting costs. You really have to run the numbers for your own situation, because that "reasonable salary" rule means you can't just pay yourself nothing. It's a trade-off between paperwork and potential savings.