Published: 9/25/2025
As a freelancer or contractor, at some point you may wish to incorporate and be taxed as an S corporation. Here’s a closer look at the process of becoming an S corporation and when switching might make sense for you.
While transitioning from a sole proprietor to an S corporation can certainly result in significant tax savings, there are a few trade-offs to consider.
Most of the trade-offs are centered around administrative requirements and potential costs. These include:
Switching to an S corp generally becomes worth considering when your net income (after expenses) is in the range of $75,000 to $100,000 or more per year.
Here’s an example:Assume you earn $120,000 in net income as a consultant.
That’s a potential tax savings of nearly $9,000 per year.
Switching from a sole proprietor to S corp can offer real tax advantages, but it’s not a one-size-fits-all solution. It’s usually best practice to review your situation once per year to ensure your business is organized properly.
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