Best way to handle Consulting fee payments through my existing Personal Service Corporation (PSC)?

Thanks for your help! You mentioned I can't retain earnings indefinitely - is there a specific formula or percentage the IRS expects me to take as salary vs. leave in the corporation? I'm trying to understand if I need to pay myself all the consulting money as it comes in, or if I can leave some in the PSC for business expenses and future slow periods.

There's no specific formula, but the IRS expects "reasonable compensation" for the services you provide. This typically means a salary comparable to what someone in your position would earn in the market. For a PSC, it's generally advisable to distribute a substantial portion as salary. You can certainly retain some earnings in the corporation for business expenses, equipment, and to smooth out income during slower periods. Just be aware that PSCs face additional scrutiny if they appear to be retaining excessive profits primarily for tax advantages. A good approach is to work with your accountant to document clear business purposes for retained earnings.

How does that service actually work? Do they just give advice or do they help with actual tax prep? My CPA seems confused about some of the PSC specifics especially when I have multiple types of income flowing through.

Did they actually help with PSC-specific issues? I've tried tax pros before who claimed to understand PSCs but then gave me generic corporate tax advice that didn't account for the special rules for personal service corps. Not trying to be skeptical but I've been burned before.

They primarily provide analysis and guidance rather than tax prep. You upload your documents and they review everything, then give you specific recommendations for your situation. They have specialists who understand the unique PSC rules, which was super helpful for me. For the PSC-specific issues, absolutely. They pointed out several things my previous accountant missed - like how to properly document the "reasonable compensation" requirements for different service types within the same PSC, and helped me structure things to avoid unnecessary scrutiny. Their advice was definitely tailored to the specific PSC rules, not just generic corporate advice.

Wait, so this service gets you through to actual IRS agents? How does that even work? I've literally spent hours on hold before giving up.

This sounds like BS honestly. Nobody can magically get through the IRS phone tree. They're notoriously impossible to reach. Are you saying this service somehow has a secret backdoor to the IRS that nobody else has?

Yes, it actually connects you with the IRS. They use their system to navigate the IRS phone tree and wait on hold for you, then call you when they have an agent on the line. It's not a backdoor - they're just willing to do the waiting that most of us don't have time for. I was skeptical too at first. I had spent 3+ hours on hold across multiple days and kept getting disconnected. With Claimyr, I submitted my request, they called me about 30 minutes later with an actual IRS representative on the line. There's no magic, they just handle the hold time so you don't have to. You can watch the video I linked to see exactly how it works.

That's interesting - I hadn't considered switching to an S corp. Would I lose any benefits by making that change? And would it affect how I handle the two different income streams?

You wouldn't lose the liability protection benefits, but you would lose the ability to retain earnings at the corporate level at the 21% rate. All income would flow through to your personal return regardless of whether you take it out of the business. For handling the two income streams, there's no difference - both producing and consulting still qualify as personal services. You'd still want to maintain clear records separating the different business activities, but the S corp can absolutely handle both streams. The main benefit is avoiding potential double taxation, especially if you need to take most of the income out as compensation anyway.

There's actually an opportunity there depending on your overall income situation. With a C corp PSC, you could potentially recognize those monthly payments as corporate income when received, then time your salary distributions strategically based on your personal tax situation each year. Gives you more flexibility than if you were receiving those payments directly as an individual.

That's a great point I hadn't thought about. I'm definitely interested in knowing if there are smart ways to handle the timing of those monthly payments to optimize my tax situation.