You're not doing anything wrong.You just have no structure.
Freelancers and consultants earning $75K–$200K pay self-employment tax on every dollar of profit. An S-Corp election splits your income so only part of it gets taxed at SE rates. The difference is typically $10K–$20K per year — more than enough to justify the structure.
This usually makes sense once profit is consistently above $50K. Below that, payroll costs can eat most of the tax savings. If you're earlier than that, keep the structure simpler and upgrade when the math supports it.
The math
What the savings actually look like
Self-employment tax is 15.3% on the first ~$168K of net profit. That's the tax you can structurally reduce.
$80K net profit
$45K salary · SE tax only on salary, not full $80K
$5,355/yr
SE tax saved
$120K net profit
$60K salary · Most common freelancer scenario
$9,180/yr
SE tax saved
$160K net profit
$70K salary · Savings exceed structure cost in year 1
$13,770/yr
SE tax saved
$200K net profit
$80K salary · Recurring savings every year, forever
$18,360/yr
SE tax saved
Estimates based on 2024 SE tax rates and illustrative salary allocations. Your CPA confirms the exact salary for your situation.
The structure
Two entities. One purpose.
The holding LLC provides privacy. The S-Corp provides the tax benefit. Each does one job cleanly.
Without this structure
With this structure
The S-Corp election has a hard deadline
IRS Form 2553 must be filed within 75 days of LLC formation for the election to take effect in the current tax year. If you miss that window, you wait a full year for the tax benefit.
For existing entities, the election must be filed by March 15 of the tax year you want it to apply to.
We handle Form 2553 as part of your formation so the deadline is addressed while the structure is being set up.
Whats included
What you get
Faq
Freelancer S-Corp — common questions
Your next tax bill can be $10K–$20K smaller.
The structure pays for itself in year one and compounds from there.