When I first started helping small business owners with their tax strategy, recommending an S corporation felt like the golden ticket. It offered a clear path to cutting down self-employment taxes, gave some legal structure, and generally made people feel like they’d “leveled up” their business.

And for many, it still does.

But over the past few years, I’ve had several conversations that go something like this:

“I thought this S corp was supposed to save me money… but my tax bill’s not going down.”

It’s not their imagination. And it often boils down to one section of the tax code that shook up everything: Section 199A.

The Big Shift That Changed the Equation

If you’re not familiar, Section 199A is the provision that gives certain business owners a 20% deduction on their qualified business income. That’s a big deal. But there’s a catch—if you’re structured as an S corporation, you might not be getting the full benefit.

Here’s why: S corp owners are required to pay themselves a salary. That salary gets taxed like regular W-2 wages, and it doesn’t qualify for the 20% deduction. Only the remaining business profit does.

So if your business isn’t clearing much beyond your salary? There’s not much left to deduct.

A Real-World Example

I had a client—a solo consultant—who was earning around $90,000. About $70K of that was paid out to them as salary (as required by S corp rules). That left only $20K showing up as “business income” for the QBI deduction.

Meanwhile, another client doing similar work, structured as a sole proprietor, was deducting a full 20% on their entire $90K.

Same income. Very different tax outcome.

When we ran the numbers, the S corp client would’ve saved more by going back to a sole proprietorship or switching to an LLC taxed as a sole prop.

So, Should You Drop Your S Corp Status?

Not necessarily. In plenty of cases, the savings on self-employment taxes still outweigh what you’d gain from a bigger 199A deduction. But it’s not automatic anymore.

You have to do the math.
You have to consider how much profit you’re actually retaining after salary.
And you have to look at whether your business is growing—or staying lean and solo for the foreseeable future.

The Bottom Line

Choosing the right business structure isn’t a one-time decision. Tax laws change. Income changes. Your goals change. What worked for you three years ago might not make sense anymore.

That’s why I now make it a point to revisit the entity decision every couple of years with my clients—especially solo operators and S corp owners under the QBI threshold.

If your S corp status feels more like a burden than a benefit lately, you’re not alone. Let’s take a second look—no pressure, just good strategy.

Reach out if you’d like help walking through it.