Thanks for sharing these details! Are there any specific payroll services you'd recommend for a one-person S-Corp? And did you find any advantages besides the SE tax savings?

I use Gusto for payroll and it's pretty straightforward for a one-person operation. The interface is simple and they handle all the tax filings automatically. Some others use Square Payroll or OnPay, which are a bit cheaper. Beyond the SE tax savings, I've found some additional benefits. Having a business entity has helped me land bigger clients who prefer working with corporations over individuals. I can also now contribute to a Solo 401k as both employer and employee, which has increased my retirement savings options. The structure has also forced me to be more disciplined with my business finances and separate them properly from personal expenses.

Can you explain this a bit more? I thought QBI applied the same whether you're sole prop or S-Corp?

Is there an easy way to track all this stuff for next year? I'm just starting some side gig work and tax season already seems daunting.

Oh no, I had no idea about the extra tax! Do you think I'll owe a lot on $3,400 of contractor income? I'm already getting a small refund from my W-2 job so I was hoping that would cover any extra taxes.

on $3,400 you're looking at around $480 just for self-employment tax (social security and medicare) before regular income tax. your refund might cover it, but it's definitely eating into what you would have gotten back. for next year, a good rule of thumb is to set aside about 25-30% of any contractor income for taxes. and yeah once you hit around $1000 in expected tax liability from self-employment, you're supposed to make quarterly payments to avoid underpayment penalties. it's a pain but better than a surprise bill!

Thanks for the insider perspective! If I do decide to just prep this year's return, can I still benefit from their expertise without paying for the full package? I'm worried that if I don't get the multi-year review, I might miss something important from previous years.

You absolutely can benefit from their expertise on just this year's return. A good tax professional will naturally flag any concerning items they notice while preparing your current return, even without doing a formal review of previous years. If they spot something that looks like it might have been an issue in prior years, they'll mention it to you. Then you can decide whether it's worth paying for a more thorough review of those specific past returns. This more targeted approach often saves money while still addressing the most important issues.

I used H&R Block's premium service for a similar situation (RSUs and multiple states) and it was a disaster. They missed several deductions and didn't properly account for the double taxation issues between states. Had to file an amended return with a real CPA later. Would not recommend for truly complex situations.

Thanks for this suggestion! My client actually did consider switching to a service charge model. Do you know if there are any specific records or documentation they would need to maintain if they went this route? And would this still allow the employees to receive similar compensation?

For service charges, they would need clear documentation showing these are mandatory fees rather than discretionary tips. This typically means updating all marketing materials, customer receipts, and internal accounting practices to clearly categorize these as service charges. Employees can absolutely receive similar compensation through service charges, but the key difference is that these would be classified as regular wages rather than tips. This gives the employer more control over distribution but also means the full amount is subject to payroll taxes upfront. Many employers who make this switch set up a clear distribution formula so staff understands exactly how service charges are allocated.

Which system do you use? We're a spa and our tip processing is a nightmare. We're spending so much time and money just managing the tip distribution and payroll calculations.

Do you have any recommendations for a good Qualified Intermediary? Also, can you partially do a 1031? Like if I sell for $700k but only want to reinvest $500k, can I just pay taxes on the $200k difference?

I've used IPX1031 for my exchanges and they were very professional, but there are many reputable QIs out there. I'd suggest asking your real estate agent or attorney for local recommendations since you'll want someone familiar with your state's requirements. Yes, you can absolutely do a partial 1031 exchange. If you sell for $700k and only reinvest $500k, you'd pay taxes on the $200k difference (called "boot" in 1031 terminology). Just be aware that the mortgage rules get a bit tricky - if your debt goes down too much in the exchange, that reduction in debt can also be considered boot. So if you had a $400k mortgage on the old property but only get a $200k mortgage on the new one, that $200k reduction in debt might be taxable as well.

Thanks for sharing your experience! So if I understand correctly, it would be better tax-wise to: 1. Move into my current rental for 2+ years 2. Sell it as a primary residence (getting partial exclusion based on % of personal use) 3. Then do a 1031 on the taxable portion into a new rental property? That's an interesting approach I hadn't considered. Would definitely save on transaction costs too since I'd only be selling two properties instead of three in my original plan.

Yes, that's exactly right! By moving into your rental first, you establish it as a primary residence. Then when you sell, you can take the $250k exclusion on the portion of appreciation allocated to your personal use (based on time). The remaining portion (from the rental period) would still be taxable, but that's where you can use the 1031 exchange to defer those taxes by rolling that portion into a new investment property. This approach is much cleaner tax-wise and as you noted, reduces your transaction costs significantly. Just make sure you keep very clear records of when the property usage changed and get a good appraisal at the time you convert it from rental to primary to establish the value at conversion.