I'm a solo consultant, just me and my laptop. A few years ago my accountant pushed me to elect S-corp status from the start, saying it would save on self-employment tax. Now I'm drowning in payroll service fees, quarterly filings, and a separate business return. Revenue has been up and down, and some months the extra admin cost more than I saved. I'm starting to think I should have stayed a sole prop until things stabilized. Has anyone reversed an S election or is that a one-way door?
S-Corp
I regret choosing an S corporation election so early
You can revoke it. It's not a one-way door. The tricky part is the timing rules and the waiting period before you can re-elect. Talk to someone who actually knows the specifics, but it's doable.
How long have you been on it? If it's been more than five years, revocation is usually cleaner. If it's been less, you can still revoke but you you might face limits on re-electing later.
Around four years. So right at that awkward threshold I guess.
The payroll fees are what get most solo people. Did you shop around for a cheaper provider? Some of the online ones are pretty reasonable for one employee-owner.
I'm on a local payroll company that charges about $60 a month plus per-run fees. It's not huge but it adds up with everything else.
I was in a similar spot. I ended up revoking after year three because the accounting bill alone was eating the tax savings. My only regret is not doing it sooner.
One thing nobody mentions: if you revoke, you have to deal with the transition on your personal return too. It's not just flipping a switch on the business side.
That's what worries me. I feel like I'm too deep in to unwind it without creating a mess.
You're not too deep. Four years is manageable. But get a second opinion from a CPA who isn't the one who recommended it in the first place.
Were you actually saving on SE tax though? A lot of people elect S-corp and set an unreasonably low salary, then get surprised later. If your salary was reasonable, the savings might have been real even with the fees.
Honestly I set a fairly low salary the first two years. My accountant said it was fine. Looking back I'm not sure it was
That changes things. If the salary was low, the savings might look bigger on paper but the risk wasn't worth it. Revoking might actually reduce your exposure.
Not a tax person but I've been a sole prop for 12 years and never regretted it. The simplicity is worth more than the marginal savings for a one-person shop in my opinion.
Simplicity has a real dollar value. That's the part nobody puts in the spreadsheet.
Also worth checking: if you have health insurance through the business, that deduction gets tangled with S-corp treatment. Revoking can change how that's handled.
I do have a marketplace plan, not through the business. But that's a good point for others reading this.
Whatever you decide, don't let the sunk cost keep you in a structure that doesn't fit anymore. Four years of fees is already spent.