A Minneapolis graphic designer earning $220K wanted to elect S-Corp status. Books were too messy. We cleaned 3 years, corrected deductions, and structured a clean transition saving $18.4K annually.
01The Situation
The designer had been freelancing for four years, growing to $220K annually. His CPA suggested an S-Corp election 18 months earlier, the SE tax savings were significant. But every time they tried, the books were not clean enough. Personal expenses were mixed in. Vehicle deductions were not documented. Home office calculations had never been done correctly.
After 18 months of delay, he came to us to fix the books first, then make the election.
02What We Did
We went through three years of bank statements and categorized every transaction. Personal items removed. Business deductions that had been missed, home office, vehicle, equipment depreciation, properly calculated and documented. The home office alone added $8,400 in annual deductions never previously claimed.
With clean books, we worked with the CPA to set a defensible $72,000 salary and file the S-Corp election. IRS accepted it. Annual SE tax saving: $18,400.
03Client Impact
The S-Corp structure had been delayed 18 months because of messy books. Cleaning them took six weeks. The election was approved within 90 days. The $18,400 annual saving starts immediately and compounds every year.
Breakdown
| Component | Before S-Corp | After S-Corp | SE Tax Impact | Annual Saving |
|---|---|---|---|---|
| W-2 Salary | $0 | $72,000 | SE tax on $72K only | — |
| S-Corp Distribution | $220,000 | $148,000 | No SE tax | $10,416 SE tax saved |
| Employer Payroll Tax | $0 | $5,508 | Required cost | — |
| Net Annual Saving | — | — | All components | $18,400/yr |
| Effective Rate Before | 28.4% | 23.1% | — | 5.3pts saved |
What changed
Three Years of Books Cleaned
Personal and business properly separated. All deductions documented. Clean baseline for S-Corp.
S-Corp Election Filed and Accepted
$72K salary set with BLS benchmark documentation. IRS accepted without question.
$18,400 Annual SE Tax Saving
SE tax now only applies to $72K salary, not $220K total. Net saving after payroll costs.
$8,400 in Previously Unclaimed Deductions
Home office, vehicle, and equipment depreciation documented and claimed.
The S-Corp structure had been delayed 18 months because of messy books. Cleaning them took six weeks. The election was approved within 90 days. The $18,400 annual saving starts immediately and compounds every year.
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