FOR FREELANCERS

32 Freelancers Didn't Know How To Incorporate. It Cost Them $211,000 This Summer.

Twenty-seven of them were still sole proprietors long after the math had flipped. Here is what that non-decision cost.

This July our team opened the books of 32 freelancers who came in for a tax review: designers, copywriters, developers, a couple of consultants. Twenty-seven were filing as sole proprietors well past the income where incorporating saves real, bankable money. By the time we finished the math, that one non-decision had cost the group $211,000 this year alone.

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Real accountants Flat monthly pricing S-corp setup and payroll included

Phoenix · August 31, 2026 · 6 min read

Real freelancers. Real numbers.

27 of 32

freelancers still filing as sole proprietors past the threshold

“I made $132,000 last year and had no idea a payroll structure existed for people like me. Once Amadae set up the S corp and ran my reasonable salary, we found $9,800 in self-employment tax I was going to pay for absolutely nothing. I just didn't know to ask.”

Priya M. · Freelance UX designer, Austin

The Story

32 freelancers, 27 sole proprietors, $211,000 gone

Every one of the 32 said some version of the same thing: I know I am probably overpaying, I just do not know what I am supposed to do differently. Nobody teaches this in art school, a coding bootcamp, or a journalism program. You left W-2 life, you started invoicing, and nobody explained that the IRS now taxes you like a business with none of the protections a business structure offers. The 27 who never incorporated were each overpaying an average of more than $7,800 a year in self-employment tax.

The July review, in one column

Freelancers reviewed32

Still filing as sole proprietors27

Average unnecessary SE tax, per person$7,800

Generalist CPAs who said 'not big enough yet'Several

Cost to the group this year$211,000

The Problem

15.3% on every dollar of profit, with no employer splitting it

The pain shows up in one recognizable way: a self-employment tax of 15.3% stacked on top of income tax, hitting every dollar of profit. I had no idea I would owe this much just because I work for myself is the exact sentence we heard in eleven different intake calls. If you are skeptical that any accounting service fixes that, you should be. Most of them file the return you already have and never touch the structure underneath it, which is the only lever that moves the number.

Coffee at green desk — Eleven of 32 said the same sentence on their intake call: I had no idea I would owe this much just because I work for myself.

What We Tried

A business bank account, a generalist CPA, and a TurboTax guess

Most of the 32 had already tried something. A few opened a business bank account and called it done. A few asked a generalist CPA, who said you are probably not big enough yet and left it there. A few paid whatever quarterly estimate TurboTax suggested and hoped April would be kinder. None of it changed how their income was taxed.

What each fix actually changed

	Bank account	Generalist CPA	Amadae
Changes how profit is taxed
Runs the $80K profit test on your numbers		If asked
Sets a documented reasonable salary		Extra fee
Tracks the S-corp election deadline
Recalculates quarterlies after the switch		Extra fee

Sound familiar? A 30-minute call tells you exactly where you stand.

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The Discovery

Self-employment tax is a formula, and the entity changes it

Here is the moment that landed for most of the 32. As a sole proprietor or single-member LLC, every dollar of profit pays the 15.3%. Elect S-corp status and only the reasonable salary portion pays it; the rest comes out as a distribution taxed at income tax rates only. The threshold that kept showing up was $80,000 of net profit: below it the payroll and admin overhead often eats the savings, above it the math flips fast. An LLC alone does nothing here, because the S-corp is a tax election layered on top of it.

Do this today: Look up last year's Schedule C net profit. If it is above $80,000, keep reading.

Self-employment tax on $120,000 of profit

Sole proprietor$17,000

S-corp, $60,000 salary$9,200

Illustrative, before payroll and filing costs. The review average was $7,800 saved per person.

The FixAMADAE

How to incorporate the right way, as a sequence

Once a freelancer crosses the threshold, incorporating stops being a mystery and becomes a checklist. Amadae forms the LLC, files the S-corp election, sets a defensible reasonable salary from market comparables, and runs payroll on it. Quarterly estimates get recalculated around the new salary and distribution split, and bookkeeping separates business from personal spending automatically. Books, payroll, and taxes from real accountants, for one flat monthly price starting at $249.

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What gets set up, in order

LLC formed and S-corp election filed on time
Reasonable salary set from market comparables
Payroll running on that salary
Quarterly estimates rebuilt around salary plus distributions
Business and personal spending separated monthly
Salary set arbitrarily low to dodge payroll tax

The Proof

$132,000 in income and no idea a payroll structure existed

Priya M., a freelance UX designer in Austin, came in during the July review. She had been filing as a sole proprietor for years at an income where the S-corp math had long since flipped. Once the election was filed and her reasonable salary was set, the review found $9,800 in self-employment tax she was about to pay for nothing.

Priya M.

Freelance UX designer, Austin

$9,800 in self-employment tax avoided

Why NowAMADAE

Every quarter you file the old way locks in the old bill

The S-corp election has real deadlines, and the September 15 quarterly estimate is closer than it looks on the calendar. Every quarter you file as a sole proprietor is a tax bill you could have restructured. The review takes about 20 minutes: we pull your actual numbers, tell you honestly whether incorporating makes sense right now, and walk you through the switch if it does. No obligation, no long-term contract.

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Sep 15

next quarterly estimate. Filed the old way, it locks in another quarter of 15.3% on every dollar.

IRS Form 1040-ES schedule

Real freelancers. Real numbers.

27 of 32

freelancers still filing as sole proprietors past the threshold

$211,000

combined cost to the group this year

$7,800

average unnecessary self-employment tax per person

$80,000

net profit where the S-corp math flips

From Amadae freelancer tax reviews, July 2025

Incorporation, payroll, and taxes in one place

Books, payroll, and taxes from real accountants, for one flat monthly price starting at $249.

LLC formation and S-corp election handled for you
Reasonable salary set and payroll run every month
Quarterly estimates calculated and filed
Year-end federal and state returns filed for you

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No long-term contract. Cancel any time. The intro call is free.

Plans from

$249/mo

If you make $40K - $69K. Flat, no hourly bills.

Monthly profit and loss reports
Tax set-aside management
Expense categorization
Real-time financial dashboard
Business bank account connections
Invoicing and contractor payments

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Cancel any timeReal accountantsTaxes filed for you

Straight answers

Questions creators ask us

I do not make enough for this yet. Is that true?+

Sometimes, and we will say so directly. But the review found the opposite mistake far more often: freelancers who crossed $90,000 or $100,000 two or three years ago and never revisited the question.

Will an S-corp get me audited?+

Reasonable compensation gets scrutiny because so many people set it arbitrarily low. The fix is a documented salary that holds up, which is a process problem, not a reason to keep paying full self-employment tax.

I already have an LLC. Is that the same thing?+

No. An LLC is a legal structure; the S-corp is a tax election layered on top of it. A single-member LLC with no election still pays self-employment tax on every dollar of profit.

What does it cost?+

Plans start at $249 a month, flat, and include books, payroll, and taxes. No hourly bills and no surprise invoice in April.

Find out if the math has already flipped for you

Twenty minutes with a freelancer accountant. Your real numbers, a straight answer on incorporating, and the exact steps if it makes sense. Free.

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