This is exactly the kind of high-level S-corp planning that requires professional guidance. At $2.7M, you're in territory where small mistakes can be very expensive. One key point that hasn't been fully emphasized: the tax treatment is the same whether you take distributions or leave money in the S-corp - you'll pay personal income tax on all $2.7M regardless. The only real tax savings comes from the salary vs. distribution split, where distributions avoid payroll taxes. For your situation, I'd suggest getting a formal reasonable compensation study done before making any decisions. The IRS scrutinizes high-income S-corp owners much more closely, and having proper documentation of your salary determination could save you significant audit costs down the road. Also consider timing - if this is a one-time windfall vs. ongoing income, that affects what salary level would be considered reasonable. A business owner making $2.7M consistently would likely need a higher salary than someone who had an exceptional year due to a large contract or sale. The 37% federal rate is just income tax - you'll need to add payroll taxes on the salary portion, but those are capped for Social Security. Most of your income would only face Medicare taxes (2.9% combined) plus the 0.9% additional Medicare tax on high earners.

Great question about compensation studies and timing strategies! Formal reasonable compensation studies typically run anywhere from $2,500 to $8,000 depending on complexity and the firm doing the analysis. At your income level, this is definitely worthwhile insurance - I've seen audit settlements that cost 10-20x that amount. Regarding timing strategies, the pass-through nature does limit some options, but there are still planning opportunities. You can't defer the tax on S-corp income to future years since it all passes through in the year earned. However, you can time when you actually distribute the cash (separate from the tax obligation), and you might have some control over when certain income is recognized depending on your accounting method. For salary timing, you do have some flexibility - you could potentially adjust your salary up or down during the year based on how profits are tracking, as long as you end up with a reasonable annual amount. Some businesses pay higher salaries early in profitable years, then reduce them if profits don't materialize as expected. The key is having documentation for whatever approach you take. At $2.7M, you're absolutely in the zone where the IRS pays attention, so every decision should be defensible with clear business reasoning and market data.

Just to clear up a common misunderstanding I had myself - the tax-free threshold for self-employment (the £1,000 trading allowance) is separate from your personal allowance. You can choose to use this £1,000 allowance instead of deducting your actual business expenses if it's more beneficial. For example, if your self-employed income is £5,000 but you only have £600 in expenses, you'd be better off claiming the £1,000 trading allowance instead. This means you'd only pay tax on £4,000 of your self-employed income. This might be useful for the original poster if their self-employment income is relatively low with few expenses.

This is such a helpful thread! I'm in a very similar position - just started a PAYE job after being solely self-employed for a few years. One thing I'd add is to make sure you keep track of when your employment started during the tax year, as this affects how your personal allowance gets allocated. If you start employment partway through the tax year, your employer will only use a portion of your personal allowance, which means you might still have some left to offset against your self-employed income. Also, don't forget that if your total income pushes you into higher rate tax territory (over £50,270), you'll pay 40% tax on the portion above that threshold from both income sources. This can be a nasty surprise if you're not prepared for it! I'd definitely recommend using one of the tax calculation tools mentioned here or speaking to an accountant if your situation gets complex. The interaction between PAYE and self-employment can create some unexpected tax bills if you're not careful with planning.

Just wanted to add another perspective - I'm a Canadian freelance developer and I've been working with EU clients for years. My accountant advised me to get VAT numbers for my high-volume EU countries through a fiscal representative service. It was expensive but worth it for me because I have many B2C clients in those countries. If you're mainly dealing with B2B clients though, the reverse charge mechanism means you don't need to register or collect VAT. One practical tip: always ask new EU clients for their VAT registration number upfront and include it on your invoice. This documents that they're a business client subject to reverse charge.

This thread has been incredibly helpful! I'm also a Canadian freelancer and had been worrying about this exact issue with my growing EU client base. One thing I'd add for other Canadians reading this - make sure you're also considering the impact on your Canadian tax obligations. Even though you might not need to collect EU VAT, you still need to report all international income to CRA. I learned this the hard way during my first audit. Also, for invoice templates, I found that including a clear statement about the reverse charge helps avoid confusion with EU business clients. Something like "VAT reverse charged - Customer to account for VAT according to local regulations" seems to work well. Thanks everyone for sharing your experiences and the tool recommendations. It's so reassuring to know other Canadian freelancers have navigated this successfully!

This thread has been incredibly thorough and helpful! As someone who works in international tax compliance, I can confirm that most of the advice shared here is spot-on. Just wanted to add a couple of professional insights that might help James and others: First, regarding timing - the IRS has actually improved their Form 8802 processing times significantly over the past year. Online submissions are currently averaging closer to 3-4 weeks rather than the 4-6 weeks mentioned earlier, though this can still fluctuate during peak periods. Second, for anyone working with Japanese companies specifically, I've noticed they're generally very familiar with Form 6166 and rarely require additional apostille authentication. However, some Japanese tax advisors do prefer to receive the certification directly rather than through the employee, so definitely confirm the delivery preference with your employer. One final tip: if you're planning to work internationally long-term, consider requesting certification for 3-5 years at once. While you'll get separate certificates for each year, having them in advance can save you from scrambling if your employer's requirements change or if processing times increase in the future. The same $85 fee covers multiple years, making this a very cost-effective approach for ongoing international employment situations.

Thank you so much everyone for this incredibly detailed and helpful thread! As the original poster, I'm honestly overwhelmed by the amount of practical advice and real-world experiences you've all shared. This has been way more valuable than anything I found in the official IRS documentation. Based on all your recommendations, here's my updated action plan: 1. Contact my Japanese employer TODAY to clarify apostille requirements and preferred delivery method (especially given Anastasia's point about some Japanese tax advisors preferring direct delivery) 2. Submit Form 8802 online through pay.gov using my old address from my tax return 3. Request certification for both this year and next year on the same application 4. Use the third-party appointee section for delivery to my current address (or directly to employer if they prefer) 5. Save that confirmation number screenshot that Freya mentioned! A couple quick questions: Should I request multiple copies upfront just in case, or can I always request additional copies later if needed? Also, given the improved processing times Anastasia mentioned, does anyone think 2 months is actually plenty of time, or should I still be concerned about the deadline? Will definitely update this thread once I complete the process - hopefully this can serve as a comprehensive guide for others facing the same situation. Thanks again to everyone who took the time to share their experiences and expertise!

Another tip - make sure your lender knows about the gift upfront! My wife and I didn't tell our lender about our gift until late in the process and it caused a lot of unnecessary stress and delays. Different loan programs have different requirements for gift funds. Some conventional loans require that a certain percentage of the down payment comes from your own funds if you're putting down less than 20%. FHA loans are more flexible with gifts. Also, double-check that your parents document the gift correctly. Our lender required a gift letter signed by both my in-laws explicitly stating the amount, that it was a gift with no expectation of repayment, their relationship to us, and their contact information.

One more thing to consider - if your parents are married and filing jointly, they can actually combine their annual gift exclusions. So for 2025, they could give up to $36,000 to you and $36,000 to your partner (total of $72,000) without any gift tax reporting requirements at all! This is called "gift splitting" and it's automatic for married couples filing jointly. Since your gift is $62k total, if they structure it as $31k to each of you, it would fall completely within their combined annual exclusions and they wouldn't need to file Form 709 at all. Just make sure the gift letter clearly states the gift is from both parents to both recipients, and have your lender review the documentation before the wire transfer. This could save your parents the hassle of filing any gift tax forms while still getting you the full amount you need for your down payment!