I’m at an inflection point. Consulting income is stable at $150K net annually, and the S-Corp math is staring me down.
Currently: Sole proprietor, 15.3% SE tax = $23K/year drain. The S-Corp scenario is compelling—salary $80K (normal payroll) + $70K distributions (zero SE tax) nets ~$10K savings, minus $2K accounting costs. $8K annual benefit. That’s real money.
But here’s my friction: complexity. Corporate return, payroll processing, audit risk if I mess up structure. Is $8K worth that headache?
Real question: How do you use Beancount to model both scenarios? Can I forecast 3-5 years side-by-side under each entity structure, account for variable income growth, and get a true net-of-all-costs comparison?
Should I actually make this leap?
Your $8K savings is best-case fantasy. Reality: $600 annual payroll service, $1,500 corporate tax return, $2K accounting fees, state S-Corp charges, quarterly filing complexity—$4,500+ in actual costs. You’re down to $3-4K net benefit. Quarterly estimated payments kill your cash flow. IRS scrutinizes suspiciously low W-2s hard. Is $3-4K worth the audit risk? Only if you’re obsessive about compliance.
Fred, Tina’s math is solid. I’ll add the breakeven analysis because I’ve run this for 50+ clients.
Breakeven math:
- Federal SE tax saved: roughly 92.35% × 15.3% × net income
- Subtract total annual costs: $4,500 (payroll, returns, accounting, filings)
- Breakeven income: ~$90K net
Below $90K? Stay sole proprietor. Between $90-120K? It’s marginal—depends on income growth trajectory. Above $120K? S-Corp usually wins.
Your $150K income is clearly above breakeven, Fred. BUT: the decision also hinges on income stability and timing. If income is volatile (dips some years), S-Corp fixed costs hurt more. If growing, switch sooner. Switching mid-year? Accounting gets messy (prorated salary calculations, amended filings).
Critical questions: Is your income stable or volatile? Are you growing? Can you handle quarterly estimated taxes and payroll processing?
Don’t optimize prematurely. The $3-4K savings matter, but operational complexity has a cost too.
I made that $180K leap to S-Corp too—absolutely terrifying at first! 
New entity, payroll processor, accounting fees… it felt like drinking from a firehose. But honestly? Two years in, it’s clockwork. ADP runs payroll automatically, I reconcile monthly in Beancount (30 mins, tops), and the workflow barely registers anymore.
My Beancount setup: separate accounts for W-2 salary, distributions, and payroll taxes. I track S-Corp “profit” independently from old sole-prop “net”—year-end comparison is chef’s kiss.
The upfront complexity is real, but it evaporates fast. You’ve absolutely got this. 
And that $3–4K annual savings? Pure peace of mind. The math is the hard part; the transition itself is totally learnable.
New entity, payroll processor, accounting fees… it felt like drinking from a firehose. But honestly? Two years in, it’s clockwork. ADP runs payroll automatically, I reconcile monthly in Beancount (30 mins, tops), and the workflow barely registers anymore.
And that $3–4K annual savings? Pure peace of mind. The math is the hard part; the transition itself is totally learnable.