Part 10: Real-World S-Corp Case Studies

📚 Real-World S-Corp Case Studies — How U.S. Owners Save (or Lose) Money in Practice

Nothing explains S-Corporation strategy better than real-world case studies.
In this final Part 10 guide, we walk through six practical S-Corp scenarios—from freelancers to family businesses to multi-state operators—showing how real owners save taxes, avoid pitfalls, and structure payroll and distributions in 2025.

1️⃣ Case Study 1 — Solo Freelancer Saving on Self-Employment Tax

A graphic designer earns $120,000 net profit as a single-member LLC.
SE tax on the full amount: $18,360.

This is the classic S-Corp use case—profit is stable, owner performs the work, and savings are significant.

2️⃣ Case Study 2 — High-Profit Consultant Balancing Salary & Distributions

A marketing consultant earns $300,000 net profit.
A reasonable salary analysis shows the owner’s role supports $110,000 wages.

At this income level, narrowing the gap between salary and profit becomes essential to avoid audit risk.

3️⃣ Case Study 3 — Husband-and-Wife S-Corp in a Community Property State

A married couple operates a home-services business in Texas.
Because Texas is a community property state, wage allocation matters.

• They elect S-Corp status
• Run payroll for one spouse performing operational work
• Second spouse contributes admin work under lower part-time wages

4️⃣ Case Study 4 — Multi-State E-Commerce Business

A California-based online seller earns revenue from CA, TX, and NY.
The S-Corp structure raises two issues:

• Multi-state nexus (income tax + franchise tax)
• California’s 1.5% S-Corp tax + $800 minimum tax

This case shows the importance of combining federal S-Corp benefits with state-by-state analysis.

5️⃣ Case Study 5 — Real Estate Professional with Hybrid Structures

A real estate agent has two income streams:

• Commission income (active)
• Rental properties (passive)

The S-Corp is used ONLY for active commission income—not rental income.

A mixed strategy often works best:
• S-Corp for active business
• LLCs or disregarded entities for rental properties

6️⃣ Case Study 6 — Medical Practice with Employees & Fringe Benefits

A small medical clinic converts to an S-Corp but needs multiple fringe benefits:

• Health insurance reimbursements
• Accountable plan for mileage
• Retirement plan with employer contributions

This example shows that even high-salary owners benefit from proper S-Corp structuring.

7️⃣ EA Takeaways from the Case Studies

• S-Corps work best when owners perform services + generate consistent profit
• Salary documentation is essential to avoid IRS reclassification
• S-Corps rarely benefit rental-only businesses
• State taxes can significantly influence strategy
• High administrative needs (employees, benefits, growth) favor proper planning
• Each case must be modeled annually as profit and roles evolve

8️⃣ Related EA Tax Guide Articles

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