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Nah. Just create an LLC and make an S-corp election if flying solo. That way you can pay yourself a salary, and pay the income tax just from the salary as opposed from revenue, which is much larger. There, I just saved you at least a hundred thousand dollars (if you're in the US and charging market rate). You can totally do it yourself - it's not complicated.

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It's not quite that simple. If you're not cheating, you have to pay yourself a market rate salary that you are fully taxed on (you are setting your market rate at a reasonable level, right...?) and you're still going to be taxed on the business distribution in excess of your cost basis, just not federal payroll or self-employment tax. Be careful of state laws and fees as well - California specifically really loves to get their pound of flesh any way they can. Depending how much you make in business income and what your expense situation looks like it may or may not make sense to go through the extra hassle. Talk to a tax professional.

I'm not in CA, my condolences to anybody who is - it's a notoriously business hostile state. I pay myself about $14K/mo pretax (modulo B&O which is paid on revenues) - enough to comfortably sustain a family of 3 in my area. This is obviously lower than market rate for what _I_ do, but not out of the line for software engineering in general. I also don't do any distributions. I expect that at some point I'll only be working _very_ part-time on whatever it is my clients want me to do, and spend the rest of the time on my own stuff, and this is where most of the tax savings will come from: you pay less tax overall if the salary you pay yourself yearly is less.

An S-Corp will increase your risk of audit. Don't go it alone, make sure you and your accountant are dotting all i's and crossing all t's.

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