A one-person studio's own $95,000 target lands inside the S-corp threshold, not above it or below it — the stronger year that actually arrived clears it by $30,060 to $63,041

The moment

Fernbank Studio is closing out its fourth year the way a one-person shop usually does: no board meeting, just an email from the accountant — already one of the studio's own fixed costs — asking for a few numbers before the books close. It is Tuesday, December 15. This year the email adds a line that has never come up before: profit is running high enough that it might be worth checking whether Fernbank should stop filing as a sole proprietorship.

Two things changed this year that the accountant is really asking about. Job pricing fixed the studio's required rate at $103.20 an hour two months ago, replacing a guess that had been quietly underpricing every job. And the referral wave that raised the staff-or- contractor question in contractor vs. employee kept landing work at the corrected rate rather than the old one. Whether that adds up to enough to make an S-corp election worth its own cost is a different question from either of those, and nobody has actually run it.

What they did instead

The studio has never revisited how it's taxed since it started, because nothing forced the question. "S corporation" was something the studio assumed belonged to bigger businesses — the kind with a office manager, not a rented desk off Prince Avenue. That assumption was never tested against a number; it was just never uncomfortable to leave alone.

The accountant's version of the same instinct is a round one: profit above "about $100,000" is where the conversation usually starts, a rule of thumb carried across many clients rather than worked out for this one. A round rule of thumb and an actual crossover point are not the same test, and only one of them is built from Fernbank's own salary range and its own compliance cost.

What that costs, if the studio is actually past the point where the election pays for itself, is a full year of paying self-employment tax on money that could have been a distribution instead — not visible on any bank statement, because nothing about not making an election ever announces itself as a cost.

The questions a CFO asks first

1. How is the business taxed today — and is that even a live question, or is the election already made?
2. What is the business actually expected to net this year, before any salary or draws come out of it?
3. What would a reasonable salary be for the specific work the owner does — a low guess and a high guess, never one invented number?
4. What would it actually cost, in a normal year, to run payroll and file a second return?
5. Given all of that, where does this year's expected profit sit against the profit level where the savings start outweighing the cost?

Question 5 is the one the accountant's round rule of thumb skips entirely — it substitutes a number that sounds about right for the one this business's own figures actually draw.

The arithmetic, shown

Fernbank's own numbers. The studio is a sole proprietorship — a single-member LLC on paper, never anything else — so it's the one setup this tool actually prices; an S corporation, a C corporation, or a partnership each get a different, shorter answer instead. Reasonable salary for the brand-and-web work the owner does full time: $58,000 at the low end, $78,000 at the high end, based on what comparable creative-director and senior-designer roles pay in the regional market. Extra cost of running an S corporation — payroll processing plus a separate business return, quoted by the accountant: $2,000 to $3,600 a year.

Scenario one — the studio's own four-year-old target, $95,000.

$95,000 is the take-home target job pricing built its whole required-rate arithmetic around — the number left over once $34,000 of fixed costs come out of $129,000 of billed work. Run through this tool, it lands inside the $76,959-to-$109,940 range Fernbank's own salary and cost guesses draw. Not above it, not below it. On a target alone, there is no clean answer here — which is the tool's own point, not a gap in it.

Scenario two — the year that actually arrived, $140,000.

The corrected pricing floor and the referral wave together put full-year profit well past the target: $140,000, not $95,000.

At $140,000, profit is $30,060 to $63,041 past the crossover, depending on which end of the salary and cost guesses turns out closer to right. Unlike the target, this number does not sit ambiguously inside the range — it clears both ends of it.

Scenario three — before any salary guess existed at all. The accountant's first pass, run with profit entered and nothing else, returns a named refusal rather than a guess: missing "your low guess for a reasonable salary" and "your high guess for a reasonable salary." The tool will not substitute the accountant's round rule of thumb, or any other number, for an answer to a question nobody has actually asked the owner yet.

What changed

Nothing was decided on the target alone, and that was the right call — a number that sits inside its own uncertainty range is not a number to act on. The studio waited for the fourth-quarter invoices to actually clear before deciding anything.

Once they did, and full-year profit came in at $140,000 rather than $95,000, the answer stopped being ambiguous. The studio and the accountant filed the election for the coming year, on the strength of the number that actually showed up, not the one that had been the working target for four years.

The studio also stopped treating "profit above about $100,000" as its own rule. The accountant now runs this same threshold every December against that year's real salary and cost guesses, because the crossover point moves with them — it does not sit still at the round number it happened to land near, or above, this particular year.

What the tool will not do

It will not tell Fernbank what a reasonable salary actually is. It reports the IRS's own nine factors — training, duties, time devoted, comparable market pay, and the rest — with no weighting between them, and takes the studio's own low and high guess as an input, not a number it produces.

It will not say whether $95,000 or $140,000 is the "right" number to plan the decision around before the year is over. Both are real — one is a target, one is what the invoices actually showed — and the tool prices both honestly rather than picking one to feature.

It will not price the Additional Medicare Tax, any state-level tax that falls specifically on S corporations, or how the election changes the studio's income tax elsewhere, including the effect S-corp wages can have on the Section 199A pass-through deduction. All three are real, and none of them is modeled here — the header says so, and this range would move if any of them were added in.

It will not file anything, or tell the studio to make the election. It prices where the payroll-tax savings start outweighing the cost, on the studio's own numbers, and stops there.