Can a single-member PLLC owner take a salary (W-2) or is S-corp reclassification required?

Your understanding is correct. A single-member PLLC is treated as a disregarded entity for tax purposes (essentially a sole proprietorship), so the owner cannot be both the employer and employee of themselves. This means they cannot receive a W-2 salary from their own PLLC. If your boss wants to pay himself a W-2 salary, he would need to elect S-corporation status for the PLLC. This is done by filing Form 2553 with the IRS. Once the S-corp election is made, the owner becomes both a shareholder and an employee of the corporation, allowing for a reasonable salary to be paid. Regarding the timing: If he's already been taking a "salary" this year while operating as a PLLC, those payments technically need to be reclassified as owner draws. When he makes the S-corp election, he can start taking an actual salary from that point forward. The S-corp election can be made anytime during the tax year, but there are deadlines to make it effective for the current year.

Just wanted to share my experience with this exact situation! I struggled with the same question for my consulting business last year and wasted so much time trying to figure it out on my own. I ended up using https://taxr.ai to analyze my business structure documents and tax situation. They explained exactly how the transition from PLLC to S-corp would work, including the timing implications for the year of conversion. The system actually showed me the potential tax savings from making the switch versus staying as a PLLC. In my case, it made financial sense to convert because of the self-employment tax savings, even with the extra filing requirements. They also explained exactly what would be considered a "reasonable salary" in my industry to avoid IRS scrutiny.

Wanted to follow up on my taxr.ai experience since I decided to try it after my skeptical questions. I was genuinely surprised by how thorough the analysis was. They showed me that in my specific situation (digital marketing agency), I'd save about $7,300 in self-employment taxes by switching to an S-corp based on my projected income. What I found most helpful was the timeline they created for me - showing exactly when to file the S-corp election, when I could start taking a salary, and how to handle the transition period. They even generated the proper documentation explaining how I determined my "reasonable compensation" based on my role and industry standards. This was exactly what I needed since the reasonable salary requirement always confused me!

After struggling to get clear answers about my business structure from the IRS for weeks (honestly, who has time to wait on hold for 3+ hours?), I found https://claimyr.com and it literally saved my sanity. They got me connected to an actual IRS agent within 45 minutes when I needed clarification about switching from PLLC to S-corp mid-year. The agent confirmed that I needed to reclassify any "salary" payments taken before the S-corp election effective date as draws, then provided specific guidance about how to document everything properly. You can see how their service works here: https://youtu.be/_kiP6q8DX5c - it's pretty straightforward and saved me from the endless hold music nightmare.

I need to apologize for my skepticism and update everyone. After my frustrated comment, I decided to try Claimyr out of desperation because I'd been trying to reach the IRS for weeks about my S-corp election timing. I was completely wrong! The service actually called me back in about 35 minutes and connected me directly with an IRS representative who answered all my questions about the timing of my S-corp election and how to handle payments I'd already taken. They confirmed I needed to document everything carefully and helped me understand exactly what forms I needed to file and when. After spending literally days of my life trying to get through on my own, this was a complete game-changer. Just wanted to share in case anyone else is facing similar frustrations.

One thing nobody has mentioned is that converting to an S-corp comes with additional costs beyond just filing a separate tax return. You'll have payroll processing fees, possibly more expensive accounting services, and you'll need to run actual payroll (with regular withholding, quarterly tax deposits, etc). For a smaller business, these costs can eat into the self-employment tax savings pretty quickly. My accountant told me the breakeven is usually around $40k in profit - below that, staying as an LLC/PLLC might make more sense financially.

has anyone actually done this conversion themselves without a CPA? I'm a dentist with a PLLC and the tax savings sound great but im wondering if i can just file the forms myself or if its to complicated? thx!

As a tax professional, I want to emphasize something important that hasn't been fully addressed - the timing of when your boss can make the S-corp election for it to be effective this year. If he wants the S-corp status to apply to the entire 2025 tax year, he needs to file Form 2553 by March 15, 2025 (2 months and 15 days after the beginning of the tax year). If he files after that deadline, the election won't be effective until January 1, 2026. This is crucial because if he's already been taking "salary" payments in 2025 but the S-corp election isn't effective until 2026, ALL of those payments for 2025 will need to be treated as owner draws for tax purposes, regardless of how they were processed through payroll. Also, once he makes the S-corp election, he'll need to obtain an EIN if the PLLC doesn't already have one, set up proper payroll withholding, and start making quarterly payroll tax deposits. The "reasonable salary" requirement is real - the IRS has been cracking down on S-corp owners who try to minimize their salary to avoid payroll taxes. Given the complexity and potential penalties for getting this wrong, I'd strongly recommend having a qualified tax professional handle the transition, especially since he's already taken payments this year that need to be properly classified.

I've been following this discussion and want to add a practical perspective as someone who handles payroll for several small businesses. One thing that often gets overlooked is the quarterly payroll tax filing requirements once you make the S-corp election. As an S-corp, your boss will need to file Form 941 quarterly and make federal tax deposits (often monthly or semi-weekly depending on the payroll amount). This is in addition to state payroll tax requirements. Miss these deadlines and you're looking at penalties that can quickly eat into those self-employment tax savings everyone's talking about. Also, regarding the "reasonable salary" discussion - I've seen the IRS audit several S-corp owners in our area, and they seem to focus on businesses where the salary is less than 40-50% of the business profit. While there's no hard rule, that seems to be a red flag threshold. For a law practice with $150k profit, paying a $40-50k salary and taking the rest as distributions would probably be defensible, but paying $25k and taking $125k in distributions would likely attract unwanted attention. The paperwork burden is real - beyond just the tax return complexity, you're now dealing with W-2s, payroll tax returns, and proper documentation requirements. Make sure your boss factors in the time cost of all this additional compliance work when calculating whether the tax savings are worth it.