I've had a single-member LLC for about two years now, mostly doing freelance design work. I keep seeing mentions of S-corp elections and how they can save on self-employment taxes. But I'm not sure if it's worth the added complexity for me. My net profit is around 60k. Has anyone here made the switch? What was your experience like? I'm worried about the paperwork and the reasonable salary requirements.
LLC
I have a single-member LLC and I'm unsure whether to apply
At 60k, the savings mightt be negligible after accounting for payroll costs and extra accounting fees. I'd run the numbers carefully. I elected S-corp for my LLC and honestly, the payroll admin is a headache.
I'm in a similar boat. Following this thread.
You need to pay yourself a reasonable salary. The IRS is cracking down on people taking distributions instead of salary. If you're not ready to deal with that, maybe hold off.
What's yourr current tax situation like? If you're in a high-tax state, the S-corp might help more with state taxes too. But yeah, the payroll and filings can eat up your time.
Thanks for the replies. I'm in California, so state taxes are high. That's part of why I'm considerin it. But I'm a one-person shop, and I don't want to spend hours on payroll each month.
CA has a franchise tax for S-corps too, I think. Be sure to check that. Honestly, for 60k, the savings might be a few Thousand at most, but you'll pay an accountant more.
I've been an S-corp for 3 years. The first year is the worst with setup. After that, it's not so bad if you have a good payroll service. But it's not for everyone
Don't forget about the QBI deduction. S-corp can affecct that too. Might be worth talking to a CPA instead of internet strangers.
I second the CPA advice. I spent hours reading forums and still got confused. A pro will look at your specific numbers.
Yeah, I think I'll schedule a consultation with a CPA. Thanks for the input, everyone. The CA franchise tax is something I didn't know about.
Let us know what you decide. I'm curious what the CPA says. I'm in CA too and considering the same.
One more thing: if you do elect S-corp, you have to file form 2553 by March 15 for it to be effective that year. So timing matters.
Thanks for that reminder. I need to look into that deadline for myself.
Oh, and make sure you pay yourself a reasonaable salary that's not too low. The IRS can reclassify distributions as wages and hit you with penalties. It's a balancing act.