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S-Corp vs LLC for new social work contractor - tax benefits comparison

Hey fellow tax warriors, I need some advice on setting up my mental health counseling business structure. I've only ever been a W-2 employee so I'm kinda lost in all this business ownership stuff - feels like I'm playing pretend adult here! I'm starting as an independent contractor in Minneapolis, formalizing my practice this month. My income should be somewhere between $75,000 and $120,000 annually depending on client load and how much I hustle (and I plan to hustle HARD since I need to build up savings and get this thing off the ground). I'm stuck deciding between staying as an LLC or going for S-Corp status. Since we're already in August, one accountant told me to just operate as an LLC for now until January when my income stabilizes, then possibly elect S-Corp status then... hope I'm explaining that right. My questions: LLC vs. S-Corp: What are the pros and cons for each given my income range and field? Are there specific tax benefits I should know about? Right now I'm planning to just use basic QuickBooks to track everything and handle quarterly tax payments myself online - which honestly makes me nervous, but so does paying an accountant $400 every quarter. Business Banking: Any recommendations for good business bank accounts? Looking for low fees, decent service, and features that work well for a small operation. My business is pretty straightforward - just a few expenses like software subscriptions (Microsoft, Dropbox, electronic signature service, therapy notes software, office supplies, etc.) I am planning to meet with an accountant for personalized advice, but wanted to hear from people who've been down this road before. Any guidance would be super appreciated! Thanks!

Dylan Fisher

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One thing nobody's mentioned yet - don't forget about state-specific issues! I'm in Minnesota too, and our state has some quirks regarding pass-through entities. If you elect S-Corp status federally, Minnesota automatically treats you as an S-Corporation for state tax purposes too. You'll need to file Form M8 annually (MN's S-Corp return). Also be aware that MN has a minimum fee for S-Corps that starts at $100 if your MN-sourced property, payroll, and sales total at least $1,020,000. For banking, I've had a good experience with Firefly Credit Union - much better rates than the big banks and they actually understand small businesses. Their business checking has no monthly fee if you maintain a $1,500 balance.

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Zadie Patel

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Thanks for the Minnesota-specific info! I hadn't even thought about state-level considerations. Is the Form M8 complicated? And that minimum fee threshold seems really high - I'm definitely not going to hit $1,020,000 anytime soon, so that's good to know! I'll definitely check out Firefly Credit Union - that $1,500 minimum balance seems totally manageable. Do they have good online banking too?

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Dylan Fisher

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The Form M8 isn't too bad - if you're already preparing federal Form 1120S for your S-Corp, the M8 uses much of the same information. Most tax software automatically generates it when you prepare your federal return. And yes, that minimum fee threshold is high - most small service businesses won't hit it for years, if ever. Firefly's online banking is surprisingly good for a local credit union. Their mobile app lets you deposit checks, transfer funds, pay bills, and even integrates with QuickBooks if you're using that. I've found their customer service to be much more responsive than when I was with Wells Fargo - you can actually talk to the same person consistently when you have questions.

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Edwards Hugo

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Just wanted to add my experience as a marriage counselor who went through this last year. S-Corps have benefits but also hidden costs that nobody warned me about: 1) You'll likely pay $800-1,500 more annually for tax preparation since S-Corp returns are more complex 2) You need workers comp insurance on yourself as an employee in some states 3) Quarterly payroll filings are required even if you're the only employee 4) Some retirement plans are more complicated with S-Corps I went with an LLC taxed as an S-Corp and saved about $4,300 in self-employment taxes my first year, but probably spent half that on additional administrative costs. Still worth it, but the savings weren't as dramatic as I expected.

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Gianna Scott

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Can you share what tax filing software you used for your S-Corp? I'm trying to decide if I can handle this myself or if I need to budget for an accountant.

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One thing nobody's mentioned yet - get your divorce attorney involved in this decision if possible. My lawyer actually advised against filing jointly during our separation because my ex had some questionable business deductions that could have triggered an audit. The potential tax savings weren't worth the risk of being tied to his return. Different situation for everyone tho.

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Zainab Yusuf

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That's actually really helpful - I hadn't thought to ask my attorney about the tax implications. Were you able to claim head of household status since you had the kids, or did you have to use married filing separately? I'm trying to figure out which status would give me the best outcome.

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I couldn't claim head of household that year because my divorce wasn't final yet and my ex and I were still living together for part of the year. I had to use married filing separately, which wasn't ideal tax-wise but gave me peace of mind. For your situation, since you've been living separately since June and have the kids primarily with you, you might qualify for head of household status even while still technically married. You'd need to meet certain requirements like paying more than half the cost of keeping up your home and having a qualifying dependent living with you for more than half the year. This status gives you better tax rates than married filing separately and access to certain credits you'd otherwise lose.

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Emma Davis

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Don't forget about the timing of your divorce! If your divorce will be final early in 2025, it might be worth delaying it by a few weeks to have the option of filing jointly for 2024. My ex and I saved almost $3k by pushing our divorce finalization from December 28 to January 3. Totally awkward but worth it financially.

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LunarLegend

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That's actually genius but also kinda hilarious. Did your lawyer suggest this or did you figure it out yourself? I wonder if judges ever get annoyed by people strategically timing their divorces around tax season lol

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Has anyone used TaxAct or TurboTax for filing multiple years of back taxes with 1099 income? I'm in a similar situation and wondering which software handles this best.

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Leila Haddad

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I used TurboTax for 3 years of unfiled 1099 taxes last year. It worked ok but you have to buy each year separately which adds up fast. They don't make it super clear how to find the previous year versions either - you have to specifically search for "TurboTax 2019" etc. on their site. The business version is what you need for 1099s, which is their most expensive tier.

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Thanks for the info! That's helpful to know about having to buy each year separately. Did you find the business version was worth it in terms of finding deductions for your 1099 income? I'm trying to decide if the higher cost is justified compared to cheaper options.

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Emma Johnson

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One important thing nobody's mentioned yet - if you're trying to catch up on unfiled 1099 taxes, make sure you're keeping your current year tax obligations on track too! For 1099 income, you should be making quarterly estimated tax payments. One of the biggest mistakes I made when catching up on my back taxes was ignoring my current year, which just created another problem. Set up those quarterly payments while you're sorting out the past years.

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Carmen Vega

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Something important nobody's mentioned yet is that to claim ANY charitable deduction over $250, you need a specific kind of written acknowledgment from the charity that meets IRS requirements. The documentation needs to state whether you received any goods or services in exchange for your donation. I learned this the hard way when I got audited a few years back. Even though I had donated legitimately, some of my deductions were disallowed because I didn't have the proper acknowledgment letters. Now I always make sure to get proper documentation before filing.

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Zara Mirza

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Does that acknowledgment need to specifically state the dollar amount of what I donated? And should I get this documentation before I file my taxes or just keep it in case of an audit?

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Carmen Vega

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Yes, the acknowledgment should include a description of the donated property (doesn't need to state the value - that's actually your responsibility to determine). It must explicitly state whether you received any goods or services in return for your donation. If you did receive something in return, the charity needs to provide a good faith estimate of its value. You need to have this documentation before you file your tax return - not just for a potential audit. Technically, the IRS requires you to have this written acknowledgment in hand by the date you file your return or the due date of your return, whichever comes first. I'd recommend getting it right after making the donation so you don't forget.

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Can someone clarify if this is different for donating time vs. items? I volunteer at a charity golf tournament and drive about 30 miles each way. Can I deduct my mileage? And I also buy snacks for volunteers sometimes.

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Andre Moreau

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You can deduct mileage for charity work at 14 cents per mile (which is frustratingly low compared to business mileage). Keep a log with dates, miles driven, and purpose. For the snacks, if you're buying them for the charity event and not just for yourself, those count as out-of-pocket expenses for charity and are deductible. Save receipts!

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One thing nobody mentioned - you should DEFINITELY get something in writing from the IRS stating that your balance is $0 and the CP-2000 issue is resolved. Even if your online account shows zero, having documentation is crucial for protecting yourself if this ever comes up again. You can request a tax account transcript through the IRS website or ask the IRS representative to send you a formal letter confirming the $0 balance. I learned this the hard way when an issue I thought was resolved popped up again three years later, and I had nothing to prove I'd already taken care of it.

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Tami Morgan

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Can I just print out the screen from my online account showing the $0 balance? Or do I need something more official than that?

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A screenshot of your online account is a good start, but it's not enough by itself. IRS systems can update, and a screenshot doesn't prove that a specific issue (your CP-2000) was resolved - only that your balance was $0 at a particular moment. You should request an official "Account Transcript" through the IRS website. This document shows all transactions and communications on your account, including adjustments that cleared the CP-2000 issue. Even better is to request a "closing letter" that specifically addresses the CP-2000 notice by its reference number. This gives you concrete proof that this specific issue was resolved, not just that your balance was temporarily zero on a certain date.

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Ali Anderson

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As someone who used to work for a tax resolution firm, I'd add one more thing - check if you received a closing letter for the CP-2000 (often a letter number 2030C). If not, you should absolutely call to verify the status. Sometimes the IRS makes adjustments based on information they receive from third parties without properly notifying you. Even if your account shows $0 now, if the issue isn't formally closed in their system, it could potentially come back later. The IRS operates on extremely slow timelines, and sometimes notices cross in the mail. Better to be 100% sure than to have this resurface years later with interest and penalties attached.

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Zadie Patel

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Do CP-2000 notices have a statute of limitations? Like, if they don't follow up within a certain timeframe, does the issue expire?

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