Comprehensive LLC Tax Classification Chart for Small Business Owners

Thanks for breaking that down! Do you have a rule of thumb for what's considered a "reasonable salary"? I've heard everything from 30% to 70% of profits should be salary. Also, at what income level do you think the extra paperwork for S-corp becomes worth it?

There's no specific percentage rule that automatically makes a salary "reasonable" - the IRS looks at what comparable professionals in your field and geographic area would earn for similar work. Research salary surveys for your industry and keep documentation supporting your salary decision. The S-Corp election typically starts making financial sense when you're consistently earning enough that the self-employment tax savings exceed the additional costs. For many businesses, that's around $40,000-$60,000 in annual profit, but it varies based on your situation. The extra costs include payroll service fees (around $50-100/month), potentially higher accountant fees ($1,000-2,000 more annually), and the time value of dealing with more paperwork and compliance requirements.

Does it actually give personalized recommendations? Most "tools" I've tried just give generic advice that doesn't account for my specific situation. I've got rental income through my LLC plus some consulting work - would it handle something with multiple income streams?

I'm skeptical about these tax tools. How does the system know what's a "reasonable salary" when even CPAs debate this? Does it just spit out general recommendations or actually provide documentation you could use if audited?

It absolutely gives personalized recommendations based on your specific financial situation. It analyzes your actual numbers and industry classification to make tailored suggestions. For multiple income streams, it's actually really good at breaking down how each should be handled differently - rental income vs consulting would trigger different recommendations. The reasonable salary feature is surprisingly sophisticated. It uses industry-specific compensation databases and IRS compliance guidelines to provide defensible salary recommendations with actual documentation you can keep for your records. It's not just generic advice - it provides specific amounts based on your location, industry, responsibilities, and business profitability that would stand up to scrutiny.

Wait, this actually works? I've literally spent HOURS on hold with the IRS business line trying to get an answer about my LLC's tax classification. How does this service actually get you through when their phone lines are always jammed?

This sounds like a scam. Why would I pay for something when I can just call the IRS directly? And how would they possibly get you through faster than anyone else? The IRS phone system is notoriously overburdened - there's no magic way to skip the line.

Yes, it absolutely works! Their system basically automates the calling and waiting process for you. Instead of you sitting on hold for hours, their system waits in the queue and then calls you when an actual IRS agent picks up. It's not skipping the line - it's just handling the hold time for you so you can do other things. The reason it exists is precisely because the IRS phone system is so overburdened. I was skeptical too, but when I needed clarification on Form 8832 for my LLC election, it saved me from wasting an entire afternoon on hold. It's basically just valuing your time - you can either spend hours waiting yourself or let their system handle the waiting for you.

Happy to share! My chart includes: 1. Tax form(s) required for each classification 2. Self-employment/payroll tax implications 3. Deductibility of health insurance premiums 4. Retirement plan options 5. Pass-through taxation vs. entity-level taxation 6. Ownership restrictions 7. Tax year requirements 8. Reasonable compensation requirements (for S-Corps) 9. Fringe benefits availability 10. Loss limitation rules I also added a column for state-specific considerations since some states have additional taxes or requirements for certain LLC classifications.

Did you include anything about QBI (Qualified Business Income) deduction differences? That's a huge factor for choosing between classifications now with the 20% deduction for pass-through entities!

The IRS website is practically useless for this! I spent hours digging through their publications and still couldn't figure out if I should elect S-Corp status. Publication 3402 is supposedly about LLCs but barely scratches the surface of what business owners actually need to know. User-created resources like the OP's chart are way more practical.

I've found the IRS Tax Information For Partnerships publication (#541) and Tax Information For Corporations (#542) to be somewhat helpful, but you have to read them together to get the full picture for LLCs. They're not designed for comparing options side-by-side like a chart would be. The problem is they're written for tax professionals, not regular business owners.