Can I contribute to my Roth IRA through my LLC income and avoid paying taxes?

Thanks for the explanation. So if I understand correctly, I need to pay myself from the LLC first, pay the appropriate taxes on that income, and then I can contribute to my Roth IRA with the after-tax money? Does it matter if my LLC is taxed as a sole proprietorship vs. S-Corp in terms of how I can contribute to retirement accounts?

Yes, exactly. You need to pay yourself first, pay taxes on that income, and then use those after-tax dollars to fund your Roth IRA. The money must be properly reported as earned income before it can be used for Roth contributions. The taxation classification of your LLC does matter for retirement planning. If you're taxed as a sole proprietorship (default for single-member LLCs), all your business profit is considered self-employment income and is eligible for Roth contributions (subject to income limits). With an S-Corp election, only your actual W-2 salary (not distributions) counts as earned income for Roth eligibility purposes. So if you go the S-Corp route and take mostly distributions with a small salary, you'll limit how much you can contribute to retirement accounts.

Did they give you advice on whether you should elect S-Corp status? My accountant says I should, but I'm wondering if it's worth the extra paperwork just to save on self-employment taxes. Does taxr.ai actually recommend specific strategies or just explain the rules?

I'm skeptical of these online tax services. How do you know they're giving accurate advice? Did you verify their recommendations with a CPA? I've been burned before by tax software that missed important details about my situation.

They did give me guidance on the S-Corp election question. They showed me the exact tax savings I'd get from an S-Corp at different income levels, and where the breakeven point was after accounting for the additional costs (payroll services, extra tax filings, etc.). In my case, they showed it made sense because I was earning above $85K, but they explained it's different for everyone. Yes, I actually did have my regular accountant review their recommendations. He was impressed and said they caught a couple of things he hadn't considered about how my retirement contributions would interact with my business deductions. They're not replacing my accountant, but they provided a really detailed analysis that helped me make better decisions.

Wait, how does Claimyr actually work? Do they just call the IRS for you? I don't get how they can get through when nobody else can. I've literally tried calling the IRS 5 times this month and couldn't get a human.

Sorry, but this sounds like BS. There's no way to "skip the line" with the IRS. I've been trying to get through to them for 3 months about an audit issue. If this actually worked, everyone would be using it and the system would be overwhelmed just like the regular IRS phone line.

They don't call for you - they use some kind of technology that navigates the IRS phone system and waits on hold in your place. When they reach a human agent, you get an immediate callback to connect with the agent. It's your call, your conversation - they just handle the hold time. I was skeptical too before trying it. I spent 3 hours on hold the week before and never got through. With Claimyr, I got connected to an agent in about 15 minutes (while I was doing other work). They apparently use some algorithm that calls at optimal times and navigates the menu options more efficiently than a regular caller. I don't know the exact tech, but it worked for me when nothing else did.

Is there a maximum income limit for contributing to a Roth IRA when you're self-employed through an LLC? I heard somewhere that if you make too much you can't contribute?

Yes, there are income limits for Roth IRA contributions regardless of whether you're self-employed or a W-2 employee. For 2025, if you're single, your modified adjusted gross income (MAGI) needs to be under $146,000 to make a full contribution. The ability to contribute phases out completely at $161,000. For married filing jointly, the phase-out range is $230,000 to $240,000. If your income exceeds these limits, you might consider a "backdoor Roth" strategy, where you make non-deductible contributions to a Traditional IRA and then convert them to a Roth. This effectively bypasses the income limits, though there are some technical considerations if you have existing pre-tax IRA balances (the "pro-rata rule").

Does the SIMPLE IRA have lower contribution limits than a Solo 401(k)? I'm trying to shelter as much income as possible and wondering which is better for a single-member LLC.

Yes, SIMPLE IRAs have much lower contribution limits compared to Solo 401(k)s. For 2025, SIMPLE IRA limits are $16,500 (plus $3,500 catch-up if you're 50+), while Solo 401(k) allows up to $70,000 total ($77,500 with catch-up). With a Solo 401(k), you can contribute as both employee and employer - up to $23,500 as employee deferrals plus up to 25% of your net self-employment earnings as employer contributions. For someone making $92k like the original poster, a Solo 401(k) would allow much higher retirement savings than a SIMPLE IRA. The Solo 401(k) is generally the best option for single-member LLCs who want to maximize retirement contributions, especially if you don't have other employees to cover.

Thank you so much for the professional perspective! As someone who's just starting to navigate this LLC/retirement planning maze, the point about reasonable salary for S-Corp election is really important. I keep seeing advice to minimize salary to save on payroll taxes, but it sounds like the IRS is watching for that. Can you give a rough sense of what "reasonable" means in practice? Like if my LLC brings in $90k in consulting income, what salary range would typically be considered reasonable vs. what might trigger scrutiny? I'm trying to understand if the S-Corp election even makes sense for someone at my income level or if I should stick with the default sole proprietorship treatment. Also, the employee inclusion requirement for Solo 401(k)s is something I hadn't considered. I might want to hire a part-time assistant eventually, so maybe SEP-IRA is the safer long-term choice? Thanks for keeping us grounded in the real-world compliance issues!

Great questions! For "reasonable salary" in S-Corp situations, the IRS generally expects you to pay yourself what you'd pay someone else to do the same work. For a $90k consulting business, I'd typically see salaries in the $45k-65k range depending on the specific type of consulting and market rates. Going below 40% of total business income often raises red flags. The S-Corp election math usually works out favorably when you're saving more in self-employment taxes than you're paying in additional compliance costs (payroll processing, extra tax filings, etc.). At $90k income, you might save around $3,000-4,000 annually in SE taxes, but factor in $1,500-2,500 in additional costs. So the net benefit might be $1,500-2,500 - helpful but not life-changing. Regarding retirement plans, if you think you'll hire employees within 2-3 years, a SEP-IRA is definitely more flexible. You can contribute up to 25% of compensation (so ~$22k on $90k income), and adding employees later is much simpler than with Solo 401(k)s. The trade-off is you lose the higher contribution limits and Roth options that Solo 401(k)s provide. For your situation, I'd lean toward staying sole prop for now and setting up a SEP-IRA for maximum flexibility as your business grows.

Great question about reasonable salary! The IRS doesn't publish specific percentages, but generally they look at what you would pay someone else to do the same work. For a $90k consulting business, a reasonable salary might be anywhere from $50k-70k depending on your industry and location. The key factors they consider are: comparable wages in your area, your qualifications/experience, time devoted to the business, and the nature of your duties. At your income level, S-Corp election could save you around $2k-4k annually in self-employment taxes, but you'll have added costs for payroll processing and potentially more complex tax filings. The breakeven point is usually around $60k-80k in business income, so you're right in the sweet spot where it might make sense. Regarding the Solo 401(k) vs SEP-IRA decision - you're wise to think ahead! If there's any chance you'll hire employees in the next few years, a SEP-IRA gives you more flexibility. The contribution limits are slightly lower (25% of compensation vs the higher Solo 401(k) limits), but you won't face the administrative nightmare of converting your Solo 401(k) when you add employees. Plus, SEP-IRAs are much simpler to maintain and have lower administrative costs. Consider your 3-5 year business plan when making this choice - sometimes the simpler option that grows with you is better than maximizing contributions in year one.

Great questions! For reasonable salary, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically want to pay yourself at least $45-60k in W-2 wages - essentially what you'd pay a qualified consultant in your field. Going too low (like $30k salary with $60k distributions) raises red flags. The S-Corp election usually makes sense when you're saving more in self-employment taxes (15.3%) than you're spending on additional compliance costs (payroll processing, extra tax filings, etc.). At $90k, you might save around $3-4k annually in SE taxes, but factor in maybe $1-2k in additional costs. So it could be worth it, but not a huge game-changer. You're smart to think ahead about employees! If there's any chance you'll hire help, SEP-IRA is definitely more flexible. You can contribute up to 25% of compensation for yourself and any employees, but you don't have the same administrative burden as a 401(k). The contribution limits are lower than Solo 401(k), but the simplicity might be worth it for your situation. I'd recommend running the numbers with a CPA who can look at your specific situation before making the S-Corp election. The decision isn't irreversible, but changing later can be complicated.

Great questions! For reasonable salary, the IRS looks at what you'd pay someone else to do the same work. For $90k in consulting income, you'd typically want to pay yourself at least 60-70% as salary (so $54k-$63k range), though it depends on your specific industry and role. The key factors are: comparable salaries in your field, the value you personally add vs. business assets/systems, and your geographic location. At $90k total income, S-Corp election often makes sense because you'd save roughly $2,000-3,000 annually on self-employment taxes (15.3% saved on the distribution portion). But factor in payroll processing costs ($500-1,500/year) and additional tax filing requirements. For the Solo 401(k) vs SEP-IRA question - you're thinking smart about future employees. SEP-IRAs require equal contribution percentages for all eligible employees, but they're much simpler to administer. If you think you'll hire help within 2-3 years, SEP-IRA is probably the better long-term choice. You can always start with Solo 401(k) and convert later if needed. The tax savings from proper planning here could easily be $3,000-5,000 annually, so investing in professional advice upfront usually pays for itself quickly!

Great questions! For "reasonable salary" with an S-Corp, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, I typically see salaries in the $45k-65k range depending on the industry and region. Going below 40% of total business income often raises red flags, especially in professional services where you ARE the business. The S-Corp election math generally works when you're saving more in self-employment taxes than you're spending on additional compliance costs (payroll processing, extra tax returns, etc.). At $90k, you might save around $3k-5k annually in SE taxes, but factor in $1k-2k in additional costs. It can make sense, but it's not a slam dunk at that income level. For the Solo 401(k) vs SEP-IRA decision - if you think you'll hire anyone (including contractors who might be reclassified as employees), the SEP-IRA is definitely more flexible. You contribute the same percentage for everyone, but there's no complex plan administration. Solo 401(k) gives better contribution limits but becomes a nightmare with employees. One more tip: Whatever you decide, document your decision-making process. If the IRS ever questions your salary level or business structure, having contemporaneous records of your reasoning (market salary research, business projections, etc.) can be invaluable.

The "reasonable salary" test is one of the most scrutinized areas in S-Corp compliance. Generally, the IRS looks for a salary that reflects what you'd pay an unrelated person to do the same work. For a $90k consulting business, I typically see salaries in the $45k-$65k range, depending on the specific industry and role complexity. The IRS considers factors like: your qualifications and experience, time devoted to the business, responsibilities and duties performed, and what similar businesses pay for comparable services. They also look at the ratio - if you're paying yourself $25k salary and taking $65k in distributions, that's likely to draw attention. At your income level, the S-Corp election can make sense, but the payroll tax savings need to outweigh the additional compliance costs (payroll processing, quarterly filings, reasonable salary requirements). Many people find the breakeven point is around $60k-$80k in business income, but it varies based on your specific situation. For the retirement planning piece, you might want to start with a SEP-IRA for simplicity, especially if you're considering future employees. You can always convert to a Solo 401(k) later if your situation changes. The SEP-IRA allows up to 25% of net self-employment earnings (or about $18k-$20k on $90k income after SE tax adjustments) and is much simpler to administer.

Great questions! For "reasonable salary" with S-Corp election, the IRS looks at what you'd pay someone else to do the same work. For consulting at $90k annual revenue, a salary in the $45k-65k range would typically be defensible, depending on your industry and geographic location. Going below $40k on $90k revenue would likely draw scrutiny. The S-Corp election usually becomes worthwhile when you're saving more in self-employment taxes than you're spending on additional compliance costs (payroll processing, extra tax returns, etc.). At $90k, you might save around $3k-5k annually in SE taxes, but factor in $1k-2k in additional costs. It's often worth it above $80k income, but everyone's situation is different. You're smart to think ahead about employees! If you hire anyone (even contractors who might be reclassified), Solo 401(k) becomes problematic. SEP-IRA is much more flexible - you contribute the same percentage for everyone, but it's simpler to administer and doesn't disqualify the plan if you add team members. The contribution limits are still quite good (up to 25% of compensation or $70k for 2025). For your situation, I'd lean toward staying sole proprietorship for now and setting up a SEP-IRA for maximum flexibility as you grow.

Great questions! For reasonable salary, the IRS looks at what you'd pay someone else to do the same work. For $90k in consulting income, you'd typically want to pay yourself at least 60-70% as salary - so roughly $54k-$63k. Going below 50% often triggers scrutiny. The key factors are industry standards, your role/responsibilities, and geographic location. At your income level, S-Corp election could save you around $3k-4k annually in self-employment taxes (15.3% on the distribution portion), but you'll also have payroll processing costs and additional tax filings. The break-even point is usually around $60k-$80k in net business income. For the retirement plan choice - if you think you'll hire anyone (even a spouse or part-time help), SEP-IRA is definitely more flexible. Solo 401(k) has higher contribution limits but becomes a headache with employees. SEP-IRA contributions are limited to 25% of compensation, but there's no employee discrimination testing and much simpler administration. Given your situation, I'd suggest: 1) Run actual numbers on S-Corp savings vs. costs, 2) Consider your hiring plans for the retirement account choice, and 3) Get a tax pro to review before making elections. The upfront planning cost is way less than fixing mistakes later!

Great questions! For "reasonable salary" in an S-Corp, the IRS generally expects compensation that's comparable to what you'd pay an unrelated employee to do the same work. For a $90k consulting business, a salary in the $45k-$65k range would typically be defensible, depending on your industry and location. Going below $40k might raise flags. The S-Corp election usually makes financial sense when you're saving more in self-employment taxes (15.3% on the salary portion) than you're spending on additional compliance costs (payroll processing, extra tax filings, etc.). At $90k income, you'd likely save $3,000-$5,000 annually, but factor in $1,000-$2,000 in additional costs. Regarding Solo 401(k) vs SEP-IRA for future employees - you're thinking ahead wisely! Solo 401(k)s terminate when you have eligible employees, and you'd need to roll assets to a new plan. SEP-IRAs are much simpler with employees (you just contribute equally for everyone as a percentage of compensation), but contribution limits are lower. If you're serious about potentially hiring help, SEP-IRA might be the more sustainable choice long-term. Consider starting with the simpler structure (LLC taxed as sole proprietorship with SEP-IRA) and upgrading later if your income grows significantly or your situation becomes more complex.

Great questions! For reasonable salary determination, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically want to pay yourself at least 60-70% as W-2 salary - so roughly $55k-65k range. Going below 50% starts to raise red flags. The key factors the IRS considers are: your qualifications, hours worked, comparable salaries in your industry/location, and the duties you perform. If you're the primary revenue generator doing specialized consulting work, your salary should reflect that value. At $90k income, S-Corp election often makes sense because you'll save about $2,600-3,100 in self-employment taxes annually (15.3% on the distribution portion). But factor in payroll service costs (~$1,200-2,000/year) and additional tax prep complexity. Regarding retirement plans - if you think you'll hire anyone, even contractors who might be reclassified as employees, SEP-IRA is definitely safer. It's simpler to administer and you can contribute the same percentage for everyone (up to 25% of compensation). Solo 401(k)s are great but become a compliance nightmare once you have employees. The safest approach is often to start simple (sole prop + SEP-IRA), then evolve your structure as your business grows and becomes more predictable.

Great questions! For reasonable salary, the IRS looks at what you'd pay an unrelated person to do the same work. For a $90k consulting business, a salary in the $45k-65k range would typically be defensible, depending on your industry and location. Going below $40k on $90k of income would likely raise red flags. The breakeven point for S-Corp election is usually around $60k-80k in business income, factoring in the payroll tax savings vs. additional costs (payroll processing, extra tax returns, etc.). At $90k, you'd likely save $3k-5k annually in self-employment taxes, but you need to weigh that against the compliance burden. Regarding retirement plans, you're smart to think long-term. If there's any chance you'll hire help, SEP-IRA is much simpler - you just contribute the same percentage for everyone (including yourself). Solo 401(k)s become problematic the moment you have any employees, even a spouse who helps occasionally. The SEP contribution limit is lower than Solo 401(k), but it's still substantial - up to 25% of compensation or $70k, whichever is less. I'd suggest modeling both scenarios with actual numbers for your situation before deciding. The "right" choice really depends on your specific income, growth plans, and risk tolerance for compliance complexity.

Great questions! For reasonable salary, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, a reasonable salary might be $50-65k depending on your field and location. The IRS gets suspicious when salary is disproportionately low compared to distributions - like paying yourself $25k salary and taking $65k distributions. At your income level, S-Corp can make sense. You'd save about $2,100 in self-employment taxes on the distribution portion (15.3% SE tax on $25-40k distributions vs. salary). But factor in payroll processing costs (~$1,200/year) and additional tax prep complexity. The breakeven point is usually around $60-80k in business income. Regarding retirement plans - if you think you'll hire help, SEP-IRA is indeed more flexible. You contribute the same percentage for everyone, but there's no complex administration. Solo 401(k) becomes a headache the moment you have employees. However, SEP-IRA contributions are only on the employer side (up to 25% of compensation), so you lose the higher employee deferral limits that make Solo 401(k)s so attractive. Consider your 3-5 year business plan when choosing. Will you stay solo or build a team?

Great questions! For reasonable salary guidelines, the IRS typically looks at what you'd pay someone else to do your work in your geographic area. For a $90k consulting business, a salary in the $45k-$65k range would generally be defensible, depending on your specific industry and location. Going below $40k on $90k of income would likely raise red flags. The S-Corp election usually makes sense when the tax savings exceed the additional costs (payroll processing, extra tax filings, etc.). At $90k, you'd likely save around $3,000-$5,000 annually in self-employment taxes, but factor in $1,500-$2,500 in additional compliance costs. So it can work, but the savings aren't huge at your income level. Regarding retirement plans, if you think you'll hire employees within the next few years, I'd lean toward a SEP-IRA. It's much simpler to administer with employees, and you can contribute up to 25% of compensation (about $22,500 at your income level). While that's less than a Solo 401(k)'s potential, it's still substantial and much easier to manage long-term. You can always convert to a Solo 401(k) later if your employment situation changes. The key is picking a strategy you can stick with consistently rather than optimizing for maximum contributions you might not be able to maintain.

Great questions! For reasonable salary in an S-Corp, the IRS looks at what you would pay someone else to do the same work. For a $90k consulting business, a reasonable salary might be $50-65k, depending on your industry and location. The key is being able to justify it - look at job postings for similar roles, industry salary surveys, or Bureau of Labor Statistics data. At your income level, S-Corp election could save you roughly $3,000-5,000 annually in self-employment taxes, but you'll have additional costs (payroll processing, extra tax filings). The breakeven point is usually around $60-70k in net business income. Regarding the Solo 401(k) vs SEP-IRA for future employees: you're thinking ahead wisely! SEP-IRAs require you to contribute equally for all eligible employees (as a percentage of compensation), but they're much simpler to administer. Solo 401(k)s become complex with employees since you'd need to handle actual payroll deferrals, not just employer contributions. Consider starting with a SEP-IRA if you think you'll hire help within a few years. You can always change retirement plans later, but it's easier to start with the one that scales with your business growth.

Great questions! For reasonable salary determination, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically need to pay yourself at least $45-60k in salary, depending on your industry and location. Paying yourself only $25k salary and taking $65k in distributions would likely trigger scrutiny. The S-Corp election generally starts making sense around $60-80k in net business income, factoring in the additional compliance costs (payroll processing, extra tax returns, etc.). At $90k, you could save roughly $3,000-5,000 annually in self-employment taxes, but you need to weigh that against the added complexity and costs. Regarding the SEP-IRA vs Solo 401(k) decision - you're thinking ahead correctly. SEP-IRAs require equal contribution percentages for all eligible employees (including yourself), but they're much simpler to administer. If you hire that assistant and they become eligible, you'd need to contribute the same percentage of their compensation as you do for yourself. Solo 401(k)s become unavailable once you have employees, so you'd need to terminate it and set up a different plan. For your situation, I'd probably recommend starting with a Solo 401(k) while you're solo, then transitioning to a SEP-IRA if/when you hire employees. You can always change retirement plan types as your business evolves.

Great questions! For reasonable salary, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically want to pay yourself at least 60-70% as salary, so around $55k-$65k. Going much lower (like $30k salary/$60k distributions) often triggers audits. The S-Corp election usually makes sense when you're saving more in self-employment taxes than the extra compliance costs. At $90k, you might save around $3k-4k annually in SE taxes, but factor in payroll service fees ($1k-2k) and additional tax prep costs. It's often worth it above $80k income, but run the numbers for your specific situation. You're smart to think ahead about employees! If you hire anyone, even contractors who work regularly, it can complicate the Solo 401(k). SEP-IRAs are much simpler with employees - you just contribute the same percentage for everyone. The trade-off is lower contribution limits, but the flexibility might be worth it if expansion is likely.

Great questions! For reasonable salary in an S-Corp, the IRS generally expects you to pay yourself what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically want to pay yourself at least 60-70% as salary, so roughly $54k-$63k. Going below 50% salary often raises red flags. The S-Corp election can still make sense at your income level - you'd save about $2,700-$4,500 annually in self-employment taxes. But factor in payroll processing costs ($1,200-$2,400/year) and additional tax prep complexity. The net benefit might be $1,500-$3,000, which could be worthwhile but isn't huge. Regarding Solo 401(k) vs SEP-IRA for future employee considerations: If you hire anyone (even contractors who become employees), Solo 401(k) becomes unavailable. SEP-IRA requires you to contribute equally for all eligible employees (as a percentage of compensation), which can get expensive fast. Some people maintain a Solo 401(k) while they're solo and switch to SEP-IRA when they hire, but you lose the employee deferral component with SEP-IRA. Another option is a Safe Harbor 401(k) once you have employees, but that's much more complex and costly. Definitely plan ahead based on your realistic hiring timeline!

Great questions! For reasonable salary, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, a salary in the $45k-65k range would typically be defensible, depending on your industry and location. Going below $40k on $90k income would likely raise red flags. The breakeven point for S-Corp election is usually around $60k-80k in net business income, factoring in the payroll processing costs and additional tax filing requirements. Below that, the payroll tax savings often don't justify the extra complexity and costs. Regarding SEP-IRA vs Solo 401(k) for future employees: SEP-IRAs require equal percentage contributions for all eligible employees (including yourself), which can get expensive fast. If you hire an assistant making $30k, and you contribute 15% ($4,500) to your SEP-IRA, you'd have to contribute 15% ($4,500) to theirs too. Solo 401(k)s become unavailable once you have employees, but SEP-IRAs can work - you just lose the high contribution limits and employee/employer dual contribution advantage. For your situation, I'd probably recommend sticking with sole proprietorship treatment and a Solo 401(k) until your income hits around $80k, then reassess the S-Corp election. Keep it simple while you're building!

Great questions! For reasonable salary determination, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting practice, a salary in the $45k-65k range would typically be defensible, depending on your field and geographic location. You can research comparable positions on sites like PayScale or BLS.gov to build your case. The S-Corp election generally becomes worthwhile when you can save more in self-employment taxes than the additional costs (payroll processing, extra tax filings, etc.). At $90k, you're likely looking at $2k-4k in annual savings, but factor in $1k-2k in additional costs. So it could make sense, but run the numbers carefully. Regarding the SEP-IRA vs Solo 401(k) for future employees - you're thinking ahead wisely! SEP-IRAs require equal percentage contributions for all eligible employees (including yourself), while Solo 401(k)s become unavailable once you have employees. If you think you'll hire help, a SEP-IRA offers more flexibility. You contribute the same percentage of compensation for everyone, but there's no complex plan administration. Remember, you don't have to decide everything at once. You could start with a Solo 401(k) now and convert to a SEP-IRA later if you hire employees. Just make sure any provider you choose can handle the transition smoothly.

Great questions! For reasonable salary determination, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, a salary in the $45k-65k range would typically be defensible, depending on your industry and location. Going below $40k on $90k income would likely raise red flags. The S-Corp election generally becomes worthwhile when you can save more in self-employment taxes (15.3%) than you pay in additional compliance costs ($2k-4k annually for payroll services, extra tax prep, etc.). At $90k income, you'd likely save $3k-6k in SE taxes, making it financially beneficial. Regarding Solo 401(k) vs SEP-IRA for future employees - you're thinking ahead wisely. SEP-IRA requires equal contribution percentages for all eligible employees (including yourself), which gets expensive quickly. However, you could start with a Solo 401(k) now and switch to a SEP-IRA later when you hire. The transition is straightforward, and you'll have maximized your early retirement savings when it was just you. Consider starting simple (Solo 401k as sole proprietorship), then evaluating S-Corp election once you have a full year of income data and clearer business growth plans.

Great questions! For "reasonable salary" with an S-Corp, the IRS looks at what you'd pay someone else to do the same work in your geographic area. For a $90K consulting business, you'd typically want to pay yourself at least 60-70% as W-2 salary, so around $54K-$63K would likely be defensible. Going below 50% starts to raise red flags. At your income level, S-Corp election might save you around $3K-4K annually in self-employment taxes, but you'll have added costs for payroll processing and additional tax filings. The breakeven is usually around $60K-80K in business income, so you're right in the range where it could make sense. Regarding Solo 401(k) vs SEP-IRA for future employees - you're thinking ahead wisely! Solo 401(k)s become much more complex with employees, while SEP-IRAs are simpler to administer but require equal percentage contributions for all eligible employees (including yourself). If you think you'll hire help within the next few years, starting with a SEP-IRA might save you the hassle of switching plans later. The key is balancing current tax savings with future flexibility. Sometimes the "perfect" strategy on paper isn't worth the added complexity in practice.

Great questions! For reasonable salary determination, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically want to pay yourself at least 60-70% as salary - so roughly $54k-$63k. Going below 50% often triggers scrutiny, especially in professional services where your personal expertise is the main value driver. The S-Corp election usually makes sense when you're saving more in self-employment taxes (15.3%) than you're spending on additional compliance costs (payroll processing, extra tax prep, etc.). At $90k, you might save around $4k-$6k annually, which often justifies the extra hassle and costs. Regarding Solo 401(k) vs SEP-IRA for future employees: You're thinking ahead wisely! SEP-IRAs require equal percentage contributions for all eligible employees (including yourself), but they're much simpler to administer. Solo 401(k)s offer more flexibility and higher contribution limits, but yes, adding employees complicates things significantly. If you think you'll hire anyone in the next few years, SEP-IRA might be the more practical long-term choice, even if the contribution limits are somewhat lower.

Great questions! For reasonable salary determination, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, you'd typically need to pay yourself at least 60-70% as salary (so $54k-63k range), though this varies by industry and location. The IRS gets suspicious when salary is disproportionately low compared to distributions. At your income level, S-Corp election might save you around $3k-4k annually in self-employment taxes, but you'll have added costs for payroll processing and additional tax filings. The break-even point is usually around $60k-80k in net business income, so you're right in the range where it could make sense. Regarding the employee issue with Solo 401(k)s - you're thinking ahead wisely! If you hire even a part-time assistant, you'd need to cover them in the 401(k) plan (subject to eligibility rules). A SEP-IRA is much simpler for businesses with employees - you just contribute the same percentage of compensation for everyone, including yourself. Less administrative burden but also less contribution flexibility. Consider starting with the simpler structure (sole prop + SEP-IRA) and upgrading later if your business grows significantly. You can always change strategies as your situation evolves!

Great question about reasonable salary! The IRS doesn't publish specific formulas, but they generally look at what you'd pay someone else to do the same work in your geographic area. For a $90k consulting business, a reasonable salary might be anywhere from $50k-$70k depending on your industry, location, and the nature of the work. The IRS considers factors like: comparable salaries for similar roles, your qualifications and experience, time devoted to the business, and the company's profitability. They're more likely to scrutinize if your salary seems artificially low compared to distributions. At $90k gross income, S-Corp election might save you around $2k-$4k annually in self-employment taxes (depending on business expenses), but you'll have additional costs for payroll processing, possibly quarterly payroll tax filings, and a separate business tax return. The break-even point is usually somewhere around $60k-$80k in net business income. Regarding the SEP-IRA vs Solo 401(k) decision - you're thinking smart about future employees. SEP-IRAs are much simpler to administer with employees, though you'd have to contribute the same percentage for everyone (including employees). The Solo 401(k) does require conversion to a different plan structure once you have eligible employees, which can be a hassle.

Great questions! For reasonable salary, the IRS generally expects you to pay yourself what you'd pay someone else to do the same work. For a $90k consulting business, a salary in the $50-70k range would typically be defensible, depending on your industry and location. Going below $40k might raise flags. The S-Corp election usually makes sense when you're saving more in payroll taxes than the additional costs (payroll processing, extra tax filings, etc.). At $90k, you'd likely save around $3,000-5,000 annually in self-employment taxes, but factor in about $1,500-2,500 in additional costs. So modest but real savings. Regarding retirement plans - if you think you might hire employees, SEP-IRA is definitely more flexible. With a SEP, you contribute the same percentage of compensation for everyone (including yourself), but there's no complex administration like with 401(k)s. The contribution limits are lower than Solo 401(k)s, but still substantial - up to 25% of compensation or $70,000 for 2025. One more consideration: you can always start with a Solo 401(k) now and switch to a SEP-IRA later if you hire employees. Just keep good records and work with a professional when making the transition.

Great questions! For "reasonable salary" with S-Corp election, the IRS generally expects you to pay yourself what you'd pay someone else to do the same work. For a $90k consulting business, a salary in the $50-70k range would typically be defensible, depending on your industry and location. Going below 40-50% of total business income often raises red flags. At $90k income, S-Corp election can make sense - you might save around $3-4k annually in self-employment taxes (the 15.3% SE tax only applies to your W-2 salary, not the distributions). But factor in payroll processing costs ($1-2k/year) and additional tax compliance complexity. Regarding Solo 401(k) vs SEP-IRA for future employees: SEP-IRA is indeed more flexible if you plan to hire. With SEP, you contribute the same percentage for everyone (up to 25% of compensation), but there's no employee vesting or complex administration. Solo 401(k) gets complicated fast once you have employees - you'd likely need to convert to a regular 401(k) with much higher admin costs. For your situation, I'd lean toward staying sole proprietorship for now and setting up a Solo 401(k) for maximum retirement contributions. You can always elect S-Corp status later if your income grows significantly.

Great questions! For reasonable salary with S-Corp elections, the IRS generally expects you to pay yourself what you'd pay someone else to do the same work. For a $90k consulting business, a reasonable salary might be $50-70k depending on your industry and role complexity. Going below 40-50% of total business income often raises red flags. At your income level, S-Corp election could save you around $3-5k annually in self-employment taxes, but you'll have added costs for payroll processing (~$1-2k/year) and potentially more complex tax filings. The break-even point is usually around $60-80k in business income. Regarding retirement plans with potential employees - you're thinking smart! If you hire anyone (even family members working part-time), Solo 401(k) becomes unavailable immediately. SEP-IRA is much more flexible for growing businesses. You can contribute up to 25% of compensation (including your own), and while the limits are lower than Solo 401(k), you avoid the employee inclusion headaches. One alternative to consider is a defined benefit plan if your income is consistently high - these allow much larger contributions ($100k+) but require actuarial administration. Probably overkill for your current situation, but worth knowing about as your business grows.

Great questions! For "reasonable salary" with S-Corp election, the IRS looks at what you'd pay someone else to do the same work. For a $90k consulting business, a salary in the $50-65k range would typically be defensible, depending on your industry and location. Going below $40k might raise flags. The key is being able to justify it based on comparable roles in your field. At your income level, S-Corp election could save you around $3-4k annually in self-employment taxes, but you'll have added costs (payroll processing, additional tax filings, etc.) that might run $1-2k per year. So the net benefit exists but isn't huge until you're earning significantly more. Regarding retirement plans, if you think you'll hire employees within the next few years, SEP-IRA is definitely the more flexible choice. You contribute the same percentage for everyone (up to 25% of compensation), but there's no complex administration like with 401(k)s. You can always start with a SEP-IRA and convert to a Solo 401(k) later if your situation changes, but going the other direction is more complicated. The decision tree usually comes down to: current income level, likelihood of hiring employees, and how much administrative complexity you're willing to handle. For many solo consultants, the SEP-IRA + traditional/Roth IRA combination provides excellent retirement savings with much less hassle.

Great questions! For "reasonable salary" in S-Corp elections, the IRS generally expects you to pay yourself what you'd pay someone else to do the same work. For a $90k consulting business, a reasonable salary might be anywhere from $50k-70k depending on your industry and role. The key factors are: your qualifications, what similar professionals earn in your area, and how much of the business success depends on your personal efforts vs. systems/assets. At your income level, S-Corp election often makes sense because you'd save roughly 15.3% self-employment tax on the distribution portion. So if you pay yourself $60k salary and take $30k in distributions, you'd save about $4,590 in SE taxes annually (minus the costs of payroll processing and additional tax prep). Regarding Solo 401(k) vs SEP-IRA for future employees: You're absolutely right to think long-term. SEP-IRAs are much simpler with employees - you just contribute the same percentage (up to 25%) for everyone. Solo 401(k)s become administratively complex and expensive once you have employees, so if there's any chance you'll hire help, SEP-IRA is usually the smarter choice. The contribution limits are nearly identical for self-employed individuals anyway.