The S-Corp Question for Consultants

If you’re a solo consultant billing $200,000 or more per year, the S-corp election is almost always worth it. As a sole proprietor, you’re paying 15.3% self-employment tax on every dollar of profit (up to the Social Security wage base of $168,600 for 2024, then 2.9% above that). With an S-corp, you pay yourself a reasonable salary and take the rest as distributions — which aren’t subject to self-employment tax.

The math is straightforward. A consultant earning $350,000 who pays herself a $160,000 salary saves roughly $18,000 to $22,000 in self-employment tax. That’s real money, and it recurs every year. The downside is more paperwork: you’ll need to run payroll, file an 1120-S, and issue yourself a W-2. We handle all of that.

NYC’s Unincorporated Business Tax — And How to Avoid It

Sole proprietors and partnerships in NYC owe a 4% Unincorporated Business Tax on top of federal and state income taxes. For a consulting firm netting $300,000, that’s an extra $12,000. The UBT doesn’t apply to S-corps or C-corps, which is another reason most of our consulting clients elect S-corp status.

There’s a partial credit against your NYC personal income tax, but it offsets maybe 60-70% of the UBT depending on your bracket. The remaining 30-40% is a pure additional cost that disappears the moment you’re structured as a corporation.

Deductions for Consulting Businesses

Consulting firms don’t have the same capital expenditure needs as a manufacturing business, but the deductions that do apply are easy to miss if your accountant isn’t paying attention.

• Home office — if you work from a dedicated space in your NYC apartment, you can deduct a proportional share of rent, utilities, and internet. A $4,000/month apartment where the office takes up 15% of the square footage is a $7,200 annual deduction
• Client meals — 50% deductible when there’s a clear business purpose. Keep the receipt and note who you met with and what you discussed
• Professional development — conferences, online courses, coaching programs, and industry memberships
• Software subscriptions — Salesforce, HubSpot, Slack, Zoom, project management tools, and anything else you use to run the business
• Travel — flights, hotels, and ground transportation for client engagements outside NYC

One thing we see constantly: consultants forget to deduct their health insurance premiums. If you’re self-employed and not eligible for coverage through a spouse’s employer, your premiums are deductible on the front of your 1040 — not even as an itemized deduction. That’s worth $10,000+ for most families.

Quarterly Estimated Taxes and Cash Flow Planning

Consulting income is lumpy. One quarter you bill $120,000 and the next you’re between projects at $30,000. The IRS doesn’t care. They want estimated payments four times a year — April 15, June 15, September 15, and January 15 — and if you underpay by more than $1,000, you owe penalties.

We calculate your estimated payments using either the safe harbor method (110% of prior year tax for high earners in New York) or the annualized income method, which adjusts each quarter based on actual income. The annualized method takes more work but saves you from overpaying in a slow quarter.

New York State has its own estimated tax requirements, and NYC does too. Three sets of quarterly payments. We set up the vouchers and amounts so you don’t have to think about it.