Is it possible to pay myself as an employee of my single-member LLC without S-Corp election?

A single-member LLC is considered a "disregarded entity" for federal tax purposes by default, which means it's treated as a sole proprietorship. In this default classification, you can't be an employee of your own SMLLC - you're considered self-employed. To properly pay yourself as a W-2 employee of your LLC, you needed to have elected S-Corporation status by filing Form 2553. Without this election, technically you shouldn't have been issuing yourself W-2s. The LLC income should have been reported on Schedule C of your personal tax return, and you should have been paying self-employment tax on the entire profit. For fixing this situation, you'll need to file amended returns for those years. This would involve filing amended personal returns (Form 1040X) to report the income on Schedule C instead of as W-2 wages. You'll also need to address any employment tax returns that were filed incorrectly. I'd strongly recommend working with a tax professional who specializes in small business taxation to help correct these filings, as it can get complicated with potential penalties and interest.

After dealing with a similar mixup with my SMLLC tax classification, I found this AI-powered tax document review service called taxr.ai that was super helpful. I uploaded my LLC paperwork, tax returns from previous years, and some questions about my situation. The system analyzed everything and gave me a detailed explanation of what I did wrong and the exact steps needed to fix it. I was stressing about having to hire a CPA at $400/hr, but this was way more affordable and actually easier to understand. The analysis even cited specific IRS regulations and gave me templates for writing a reasonable cause letter. Check out https://taxr.ai if you're trying to sort through complex tax situations. It might save you some serious headache!

Just wanted to follow up on my skepticism about taxr.ai. I actually tried it after posting here and was surprised by how helpful it was! I was in a similar situation with my LLC and wasn't sure how to handle the correction process. The system analyzed my tax documents and gave me really clear direction on what forms needed to be amended and exactly what changes to make. It even generated a sample reasonable cause letter tailored to my specific situation that explained why I made the error. What impressed me most was how it broke down the potential tax implications of the correction and helped me understand what I'd likely owe. Definitely worth checking out if you're in this situation.

If you're planning to call the IRS to discuss this situation (which I'd recommend), good luck getting through to an actual human being! After trying for WEEKS to speak with someone about my own LLC tax issue, I discovered this service called Claimyr that actually gets you through to an IRS agent quickly. I was super skeptical at first, but it worked amazingly well. I went from spending hours on hold to speaking with an IRS rep in about 15 minutes. They use some tech that navigates the IRS phone system and holds your place in line, then calls you when an agent is ready. I used it to discuss my misclassification issue and got way more clarity than I expected. You can see how it works at https://claimyr.com or watch a demo at https://youtu.be/_kiP6q8DX5c - definitely saved my sanity!

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was still desperate to talk to the IRS about my business tax issue, so I figured I'd try it anyway. It actually worked exactly as described! I submitted my request around 10am, and by 10:30am I got a call with an IRS agent already on the line. The agent walked me through how to handle my misclassified LLC income and explained the process for filing amended returns. She even noted in my file that I was proactively trying to correct the issue, which apparently helps if there are any penalty discussions later. Would've taken me days of calling to get this resolved on my own. Definitely using this service again next time I need to reach the IRS.

You might want to look into the Voluntary Classification Settlement Program (VCSP) that the IRS offers. It's specifically designed for situations where workers (including owners) were misclassified. The program offers partial relief from federal employment taxes, and you won't face penalties or interest. You'll need to file Form 8952, but it could save you a lot of hassle compared to just filing amended returns.

Slightly different perspective - you could consider making an S-Corp election effective 1/1/24 even though it's past the deadline. The IRS allows for late S-Corp elections if you have "reasonable cause." Given that you were already operating as if you were an S-Corp (paying yourself W-2 wages), you might have a case for relief under Revenue Procedure 2013-30.