A Memphis plumbing contractor earning $480K as a sole proprietor was paying SE tax on every dollar. Entity restructure to S-Corp plus $28K in newly identified deductions, $44K annual saving.
01The Situation
The contractor had been a sole proprietor since starting the business 12 years ago. Revenue grew to $480K. His accountant had filed Schedule C returns every year without ever suggesting a different structure. A neighbor who had gone through an S-Corp conversion mentioned the SE tax savings. The contractor called us to understand whether it applied to his situation. It did, significantly.
02What We Did
We set the S-Corp salary at $96,000, benchmarked using BLS data for plumbing contractors in Memphis, within the defensible range. SE tax savings from moving $384,000 from self-employment income to S-Corp distribution: $53,152 per year, offset by employer payroll tax of $7,344. Net SE tax saving: $45,808.
We simultaneously found $28,000 in annual deductions never claimed: truck depreciation (business use never documented), home office (dedicated dispatch and billing space), and tool depreciation (equipment with no depreciation schedule). Total first-year benefit: $72,168.
03Client Impact
The contractor had been paying $67,840 per year in self-employment tax for 12 years. The S-Corp structure reduces that to $14,688. The conversation about entity structure took 20 minutes. The saving starts immediately and compounds every year.
Breakdown
| Tax Component | Sole Proprietor | S-Corp ($96K Salary) | Difference | Notes |
|---|---|---|---|---|
| Self-Employment Tax | $67,840 | $14,688 | $53,152 less | SE tax only on salary |
| Employer Payroll Tax | $0 | $7,344 | $7,344 more | Required cost |
| Income Tax | $124,800 | $116,640 | $8,160 less | Lower taxable income |
| Net Annual Saving | — | — | $44,168 | All components |
| Plus: New Deductions | — | $28,000 | — | Truck, home office, tools |
| TOTAL BENEFIT | — | — | $72,168 | First year combined |
What changed
S-Corp Election Filed and Accepted
$96K salary benchmarked with BLS data. IRS accepted without question.
$44K Annual SE Tax Saving
SE tax now only applies to $96K salary, not $480K total income.
$28K in New Deductions Found
Truck depreciation, home office, tool depreciation. Prior year amended returns filed.
Total First-Year Benefit: $72K
$44K structural saving + $28K new deductions. Recurring every year going forward.
The contractor had been paying $67,840 per year in self-employment tax for 12 years. The S-Corp structure reduces that to $14,688. The conversation about entity structure took 20 minutes. The saving starts immediately and compounds every year.
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