solo management consultant. SMLLC since 2023. did about $147k profit in 2025 and on track for $180k+ this year. my CPA has been hinting i should elect S-corp for 2026 but i hate complexity and reasonable comp scares me.
tried calculating the savings and i think it's like $5-7k/yr after the extra payroll/CPA costs? doesn't seem worth the headache. anyone been through this transition who can share whether it was worth it?
CPA in NJ. couple things to add:
1. the "reasonable" salary is the only thing IRS scrutinizes hard. set it too low and you're audit bait. 50-60% of profits as W-2 is a defensible safe harbor in most knowledge work.
2. you have to actually run payroll, file 941s quarterly, do W-2/1099s in january. if you're a one-person shop and don't have systems set up, this is REAL admin overhead. budget ~6-10 hrs/yr of your time.
3. you can elect mid-year (form 2553) but timing matters. for 2026 you needed to file by 3/15/26 unless you're seeking late election relief.
The framework I'd think through:
S-corp election makes sense when (a) net profit consistently exceeds about $80-100k, (b) you can reasonably set a salary that's below total profit (so distributions are non-trivial), and (c) you're disciplined enough to run payroll properly. For pure consulting at $180k profit, you're in the sweet spot.
California specifically charges S-corps the higher of $800 minimum franchise tax or 1.5% of net income. That eats roughly $2,700/yr at $180k profit, so the CA-resident savings are smaller than e.g. Texas or Florida. Run the actual numbers for your state — the QBI deduction interaction also matters.
For 2026 you missed the 3/15 deadline for the year-of-formation election, but late election relief under Rev. Proc. 2013-30 is routinely granted if you have reasonable cause. Informational only.
this is exactly the math i needed. i'm in florida so no state corp tax. CPA confirmed late election is doable. going to do it for 2026. thanks all