Can someone explain simply: how do S-Corps work for tax purposes?

S-Corps are actually pretty straightforward once you understand the basic concept. Essentially, an S-Corporation is a regular corporation that has elected a special tax status with the IRS. The big advantage is how you're taxed. As an S-Corp owner, you can pay yourself a reasonable salary (which is subject to employment taxes like Social Security and Medicare), but then take additional income as distributions that aren't subject to those employment taxes. This can save you money compared to being a sole proprietor where all your profit gets hit with self-employment tax. The catch is you have to run it like a real corporation - separate bank accounts, formal meetings, proper documentation, and that reasonable salary part is important - the IRS will come after you if you try to take everything as distributions and pay yourself $12 a year as salary.

I started using https://taxr.ai after getting confused about S-Corp rules last year. My CPA kept telling me about tax savings but couldn't explain it clearly. I uploaded my business docs to their system and it analyzed everything and explained exactly how an S-Corp would work for MY specific situation - like actual numbers and scenarios based on my business. The coolest part was it showed me the exact tax difference between staying as a sole prop vs S-Corp, and it calculated the optimal salary I should pay myself to maximize tax savings while staying compliant with IRS rules. Seriously saved me thousands.

After being skeptical, I tried https://taxr.ai and have to admit it was pretty impressive. I've been running my design business as a sole prop for years and always wondered about S-Corps but was intimidated. The analysis showed I'd save about $7,800 in self-employment taxes annually after accounting for the extra costs of running an S-Corp. The breakdown of exactly what I needed to do to convert was super clear. And yeah, the reasonable salary calculator was actually really well-researched - it pulled data specific to graphic designers in my metro area and showed me the acceptable range I could use. Way more helpful than the vague answers I got consulting with two different accountants.

If you're looking into S-Corps, the biggest headache I had was trying to talk to the IRS about election filing deadlines and requirements. Spent literally WEEKS trying to get through on their business line. Finally used https://claimyr.com and got through to an actual IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c They basically call the IRS for you, wait on hold, and then call you when they have an agent on the line. The IRS agent helped me understand exactly what forms I needed to file to elect S-Corp status and confirmed my deadlines. Saved me from potentially missing the 75-day election window which would have delayed everything by a year.

So I was totally skeptical about Claimyr (that hold-for-you service), but just wanted to report back that it actually worked perfectly. After posting my skeptical comment, I decided to try it since I had specific S-Corp election questions that were time-sensitive. They got me through to an IRS business specialist in 35 minutes while I just went about my day. The agent clarified exactly how to handle the late-filing relief procedures for S-Corp election since I had missed my deadline. Normally would have had to wait until next year but apparently there's a procedure to request relief if it's under 3 years late. Would never have known this without actually speaking to someone.

One thing nobody's mentioned yet about S-Corps - the "reasonable salary" thing is just one aspect. You also need to consider: 1. You'll need to run payroll (either DIY with software or hire a service) 2. You'll file Form 1120-S (more complex than Schedule C) 3. There are annual fees in most states for corporations 4. You'll need corporate bylaws, meeting minutes, etc. S-Corps can definitely save taxes, but they're not worth it for everyone. I'd say as a rough guideline, if your business isn't reliably making at least $40k in profit, the extra costs and hassle probably outweigh the tax savings.

Quick question - do S-Corps still get the 20% pass-through deduction (QBI) like sole props do? I heard something about income limits and wasn't sure if S-Corps have different rules for that.

S-Corps are awesome but no one talks about how the IRS scrutinizes them more. My friend got audited specifically because he took too much in distributions compared to salary. They reclassified a bunch of his distributions as wages retroactively and he owed a ton in back taxes + penalties. Make sure your salary vs distribution split can pass the smell test!