The Truth About S-Corps for 6- and 7-Figure Consultants
The S-Corp election is often promoted as the ultimate tax hack for consultants, coaches, and service providers earning six or seven figures.
But is it always the right move?
At Cutler & Co., our experience spans over dozens of high-income professionals in Colorado and many more across the United States.
Many of whom rushed into the S-Corp structure too soon or without understanding the full implications.
In today's article, we will break down the truth and all the ins and outs of the S-Corp.
Here's what you really need to know before making the switch.
What Is an S-Corp and Why Do Consultants Consider It?
An S-Corporation isn’t a separate legal entity like an LLC or C-Corp - it’s a tax election made with the IRS.
You can form an LLC and then elect to have it taxed as an S-Corp.
This move lets you treat some of your earnings as salary and some as profit distributions, which are not subject to self-employment tax.
If you're earning $200K, $500K, or more, the savings can be significant.
For example, only the portion you pay yourself as salary is subject to Social Security and Medicare taxes.
The remainder (profit distributions) escapes that 15.3 percent self-employment tax.
That sounds great - and it often is, but there are tradeoffs.
So what are those tradeoffs?
The Hidden Costs and Risks of S-Corps
Electing S-Corp status adds complexity to your business.
Before making the switch, you will need to:
Run payroll and file payroll tax returns
Maintain corporate formalities and documents
Pay reasonable compensation (which must be justifiable)
File a separate corporate tax return (Form 1120S)
Get any of this wrong, and you can trigger penalties or even lose your S-Corp status.
That's why, as we previously stated, this is not one of those DIY things.
Many consultants jump into the structure to save on taxes without having the systems in place to stay compliant.
Worse, setting your salary too low to save on taxes is a common red flag that invites IRS scrutiny.
Ok, so, should you set up an S-Corp for yourself or not?
Well, the answer is always - depends.
When an S-Corp Makes Financial Sense
We typically recommend an S-Corp structure when a consultant or service provider is earning at least $150K to $200K in net income consistently.
At that point, the tax savings begin to outweigh the added cost and complexity.
For example, if you pay yourself a $120K salary and take $180K in profit distributions from a business generating $300K in profit, you could save roughly $20K to $25K annually in self-employment taxes.
But below that income threshold, the cost of payroll, bookkeeping, and tax filings may eat up the savings.
Here's an actual example from one of our clients.
Real Example: Smart S-Corp Setup Saved $40K Annually
A Boulder-based solo consultant earning $350K came to Cutler & Co. as a sole proprietor.
We reviewed their books, restructured their entity to an LLC with S-Corp election, and implemented payroll at a reasonable salary level.
The result?
Nearly $40K in tax savings in the first year.
And because we handled the compliance side end-to-end, they avoided common mistakes that might have triggered IRS attention.
How Cutler&Co. Supports the S-Corp Transition
If you're considering an S-Corp or already have one but aren’t sure it’s set up correctly - we can help.
At Cutler & Co., we help clients like yourself evaluate their income trends, growth plans, and compliance capabilities before recommending a structure.
Then and only then, we go ahead and handle the setup, payroll integration, quarterly planning, and end-of-year filings so your S-Corp actually delivers the benefits you expect.
If this is something you are interested in, consider booking a call with one of our specialists by clicking the button below.
Book a Structure Strategy Session with Cutler & Co.
