Interior Design Business Structure: S-Corp, SSTB Classification, and Product Resale

Interior designers operate in a unique tax position. The SSTB classification depends on what the designer actually does. Pure design consulting (advising clients on aesthetics, color schemes, spatial planning) may be treated as an SSTB under the “consulting” category. However, most interior designers also specify, procure, and mark up physical products (furniture, fixtures, fabrics, lighting), and product sales aren’t consulting, though separately billed design fees can still make the whole business an SSTB under the 10% de minimis rule.

When does the S-Corp election make sense?

What about trade discounts and product markups?

Interior designers typically receive trade discounts off retail from furniture and fixture manufacturers. The designer procures the item at the trade price and sells it to the client at retail (or a discounted retail price). The markup is gross profit, and the trade cost is COGS.

For tax purposes, the product sales must be reported as income (not netted against the purchase). The designer reports total product sales as gross receipts on Schedule C (or Form 1120-S for S-Corps), the trade cost as COGS, and the net markup as gross profit.

Some designers charge clients “cost plus” (trade price + a percentage markup). Others bill a flat design fee and sell products at retail. The tax treatment is the same regardless of pricing model: product sales are income, purchase costs are COGS.

Related guides:

• Tax Deductions for Interior Designers: Trade Expenses, Showroom Costs, and Client Presentation Materials

What are the ongoing compliance costs of an S-Corp versus a sole proprietorship?

An S-Corp requires a separate federal tax return (Form 1120-S), which adds preparation fees. You also need a payroll service for the owner’s reasonable salary, which adds a cost that depends on frequency and state requirements. Some states charge an annual S-Corp franchise tax or filing fee (California’s is $800 minimum). A sole proprietorship files Schedule C on the personal return with no separate payroll obligation, making it significantly cheaper to maintain. The S-Corp makes financial sense when the FICA savings on distributions exceed these additional costs, which usually happens at net profits above $50,000 to $60,000.

When does it make sense to elect S-Corp taxation for my LLC?

The general rule of thumb is when your net self-employment income consistently exceeds $50,000-60,000 annually. Below that, the S-Corp’s added compliance costs (payroll processing, quarterly payroll tax filings, a separate corporate return) often exceed the FICA savings. The calculation is straightforward: an S-Corp pays FICA only on the owner’s reasonable salary, not on distributions above that salary. If your LLC earns $100,000 and a reasonable salary is $60,000, you save roughly $4,950 in employment taxes (self-employment tax of 15.3% on 92.35% of $100,000 is $14,130, versus 15.3% payroll tax on the $60,000 salary, $9,180). Subtract $2,000-3,000 in added compliance costs for payroll and the separate S-Corp return, and you net roughly $2,000-3,000 in annual savings. File Form 2553 by March 15 for a calendar-year election, or no more than 2 months and 15 days after the start of the LLC’s first tax year for a mid-year start.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.