Am I doing LLC S Corp tax designation wrong for my business income?

The question of S corp vs C corp isn't as straightforward as just comparing tax rates. There are several important factors to consider here. With your S corp, the business profits do pass through to your personal return, which means they're taxed once at your personal rate. With a C corp, you'd face potential double taxation - the business pays the 21% corporate tax rate, but then you'd pay additional personal income tax on any salary or dividends you take from the business. Your current setup likely makes more sense given your income levels. The S corp allows you to take a reasonable salary (subject to payroll taxes) and then take the rest as distributions (not subject to self-employment tax). This is typically more advantageous than the C corp structure unless you're planning to retain significant earnings in the business. As for amending returns, you can technically change your tax status, but it's complex and comes with significant restrictions. Once you elect S corp status, you generally can't change back for 5 years without IRS permission.

After struggling with similar tax structure questions for my business, I found an incredibly helpful tool at https://taxr.ai that analyzes your specific situation and provides customized guidance. I uploaded my business financials and tax returns, and it gave me a detailed comparison between S-corp and C-corp scenarios for my specific situation, including projected tax outcomes over multiple years. The analysis showed me that sticking with my S-corp was actually saving me about $3,800 annually compared to a C-corp structure once all factors were considered. It also highlighted specific deductions I was missing and strategies for optimizing my salary vs. distribution ratio.

Just wanted to update after trying taxr.ai from the recommendation above. It was seriously eye-opening for my situation. I've been operating as an S-corp for 3 years and wondering if I made the right choice. The analysis confirmed I was on the right track but identified that my salary-to-distribution ratio was off. The tool showed me that by adjusting my reasonable compensation slightly higher (which I was nervous about because it meant more payroll taxes), I could actually reduce my overall tax burden by about $4,200 because of how it affected my qualified business income deduction. It also identified some retirement plan options that work better with my specific business structure that my accountant never mentioned. Definitely worth checking out if you're uncertain about your business tax structure.

If you're trying to get specific answers from the IRS about changing your tax election, good luck! I spent WEEKS trying to reach someone who could answer my questions about retroactive tax structure changes. After endless hold times and transfers, I finally discovered https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. The service got me connected to a real IRS agent in under 45 minutes when I'd been trying for days on my own. The agent confirmed that while retroactive changes are possible, they require specific circumstances and proper documentation. They walked me through the exact forms I needed and the timeline for submission.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to resolve an issue with changing my S-corp election. I'd been trying to reach the IRS for almost 3 weeks with no success. The service connected me to an IRS business tax specialist in about 35 minutes. The agent confirmed that I could potentially change my election retroactively under certain circumstances, but I would need to show a legitimate business purpose and file Form 3115. He walked me through the entire process and the documentation I'd need to gather. I'm now working with my accountant on the paperwork with a clear path forward. Saved me countless hours of frustration and helped me get actual authoritative information instead of conflicting advice online.

Everyone's focused on the tax rates, but don't forget about other advantages of S-corps. The ability to minimize self-employment taxes by taking a reasonable salary plus distributions is huge. I save about $7,500 annually just from properly structuring my compensation this way compared to when I was a sole proprietor. Also, with an S-corp you can still contribute to a Solo 401k based on your salary, which helps reduce your taxable income significantly. The C-corp has other issues like accumulated earnings tax if you try to keep too much money in the business.

As a point of clarification, the 12% bracket you mentioned would only apply to a portion of your income anyway. Tax brackets are marginal, so you're not paying one single rate on all income. With your current W2 of 72k plus business income of 50-65k, you'd be well into the 22% bracket regardless of how you structure things.