Meet “Maya”, a wedding photographer who’s filled with dread every time it’s time to file her taxes every April. She’s heard the chorus: “Just become an S-Corp. You’ll save so much tax!” But nobody has explained how those savings appear.
Let’s walk through what I would discuss with Maya if she booked an intensive with me to determine if an S-Corp is the right choice for her business:
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Maya’s Stripe and bank statements say she brought in $250,000 last year. That’s revenue—the total coming in.
Then we listed expenses: second shooters, editing, software, insurance, client gifts, travel. Altogether: $150,000.
Revenue − Expenses = Profit.
$250,000 − $150,000 = $100,000 profit.
This “profit” number is the one we’ll use to reason about taxes in the rest of the story.
Right now Maya is taxed as a sole proprietor (which is also how a single-member LLC is taxed by default). For a quick whiteboard estimate, I use the round number creatives remember:
So with $100,000 profit, a back-of-the-napkin estimate is:
She’ll also owe income tax and maybe state tax, but our story today is about the 15.3% piece—because that’s where S-Corp savings (sometimes) show up.
Why the simplification? The IRS calculation includes small adjustments. For clarity, we’re using the clean 15.3% on profit—the same way I sketch it with clients to test fit before we get precise.
An S-Corp is a tax election, not a new kind of company. If Maya chooses it, two things shift:
That split is the whole magic trick. Nothing else mystical is happening.
Think of your pay as wearing two hats.
But there’s a rule: the salary must be “reasonable.” Not a pretend $10,000 to dodge taxes—something you can defend for the work you actually do.
We tried a realistic split for Maya’s $100,000 profit:
Now apply the 15.3% only to the salary:
Compare that to the no-S-Corp world:
So the savings appear because $40,000 of Maya’s pay is no longer hit with 15.3%.
Same $100k profit. Different mix of how it reaches you.
Important: this doesn’t erase income or state taxes. We’re isolating the self-employment piece to see if an S-Corp is even worth exploring.
So what would stop Maya (or you) from setting a tiny salary and taking everything as distributions?
Answer: the reasonable compensation standard. The IRS expects your W-2 to look like a fair wage for the job someone like you performs in your market. There isn’t a single magic number, but there is common sense:
A too-low salary might “save” tax today and raise eyebrows tomorrow. We’re optimizing, not gaming.
S-Corps add admin. So Maya would need to keep an eye on these oft-forgotten expenses:
If your profit isn’t consistently healthy, those costs eat the benefit. This is why you’ll hear a rough “$75,000+ in profit” guideline before it’s likely worth it. (Not revenue—profit.)
Let’s say Maya decides to operate as an S-Corp. She pays herself $60k entirely via payroll and, in a few years, she wants a raise. Instead of boosting the W-2 (which increases the 15.3%), we left her salary at $60k and added a $10k owner distribution. She paid herself more without increasing that particular tax—while still keeping the salary reasonable.
That’s the leverage S-Corp gives when the fit is right.
Let’s look at Maya’s last two years. Profit hovered between $95k and $115k. Cash flow could comfortably handle payroll. She was willing to keep basic documentation for her salary rationale. For Maya, the story ends with a yes—because she understood where the savings came from and what she was trading for them.
For someone at $45k profit with spiky months and no systems? I’d probably say “not yet.” Clean up books, build profit, revisit later.
Grab my S-Corp vs. LLC Calculator and recreate Maya’s spreadsheet:
👉 Download the free calculator
Have edge-case questions? DM me on Instagram and I’ll sanity-check your setup.
This post is educational only; not tax, legal, or financial advice. Talk with your CPA about your specifics.
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