CLIENT CASE STUDY
S Corp Election Tax Savings: How One Couple Cut Their Tax Bill by $40,000 to $50,000 a Year
A contractor and a self-employed designer. Two businesses, no real bookkeeping, and a tax bill far bigger than it needed to be. Here is what we found and what we changed.
Written and reviewed by Paul Belshaw, MSCTA — in tax and accounting since 1978.
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Case Study at a Glance
CLIENT - Married couple, both self-employed — a construction contractor and a graphic designer
BUSINESSESS - A construction contracting business, and a self-employed graphic design practice
HOW THEY WORK WITH US - Virtual-first hybrid
STARTING POINT - Almost no bookkeeping. What existed was unusable. Both businesses taxed as single-member LLCs.
THE PROBLEM - Paying income tax and full self-employment tax on every dollar of profit in both businesses
WHAT WE DID - Cleaned up the books, built complete financial statements, elected S corporation status for both businesses, set up payroll with reasonable compensation, added qualified retirement plans
THE RESULT- About $40,000 to $50,000 in tax savings per year
Every business is different. This is one client's outcome, not a promise of what you would save. Your result depends on your income, your structure, and your situation.
The Short Version
A married couple came to us with two self-employed businesses, no usable bookkeeping, and a lot of stress about taxes. He runs a construction contracting business. She runs her own graphic design practice. We cleaned up the books first. Once the financial statements were accurate, we could see what the numbers had been hiding. Both businesses were paying full self-employment tax on every dollar of profit, and neither one needed to be. We elected S corporation status for both, set up payroll, calculated reasonable compensation for each owner, and added qualified retirement plans. The S corp election tax savings, combined with the other strategies, came to roughly $40,000 to $50,000 a year.
The order mattered more than any single move. None of it was visible until the books were right.
Where They Started: Two Businesses, No Books They were doing well. That was not the problem.
He ran a construction contracting business. She ran her own graphic design practice. Both were making real money. Neither one had bookkeeping worth the name, what existed was a mess, and most of it was missing.
For a contractor, that gets expensive fast. Trucks, equipment, fuel, materials, subcontractors, equipment loans, money moves in every direction all year long. When nobody is tracking it properly, what you end up with is a pile of receipts and a bank balance. Neither one tells you what you actually made.
So every spring was the same. They did not know what they had earned until the year was over. They did not know what they owed until it was too late to do anything about it. And they worried about it the whole year in between. That is the part people do not talk about enough. The tax bill is one thing. Not knowing is worse. For tax purposes, both businesses were single member LLCs. That is a fine place to start a business. It is not always the right place to stay.
"They came to us with the perfect storm. A lot of issues, a lot of problems, and a lot of anxiety." — Paul Belshaw, MSCTA
Step One: We Fixed the Books
We did not start with tax strategy. We started with the books, because there was no way to build a strategy on numbers we could not trust.
Cleaning up meant rebuilding, not tidying. When we were done, both businesses had what we consider complete financials:
A real balance sheet, not just a profit and loss statement
A fixed asset schedule with depreciation
A loan amortization schedule
Payroll with the payroll tax detail broken out
Auto expenses, journal entries, and trade-ins handled correctly
On a contracting business, that list is not academic. He had trucks and equipment that belonged on a fixed asset schedule with real depreciation, and were not on one. He had equipment loans where nobody had ever split the payments between interest and principal. That meant the balance sheet was wrong, and so was the deduction. He had work trucks, mileage, and a trade-in that had been handled incorrectly.
Those five pieces are the ones a bank feed cannot produce on its own, and they are exactly the pieces a tax preparer needs. We do the bookkeeping and the tax return under one roof, so the books get built the way the return needs them from the start. That is not a small distinction. It is the reason the next step was even possible.
From the wrong tax election to a structure built to last
Family-owned insurance benefits agency · Pasco County, greater Tampa Bay area
No bookkeeping, a tax election that didn't fit, and workers paid the wrong way. We rebuilt the books, moved the entity onto the right election, and prepared every return that touched it — under one roof.