LLC as S Corp to reduce self-employment tax burden - worth it at $55K income?

The S Corp strategy can definitely work to reduce self-employment taxes, but there are some important considerations at your income level. When you elect S Corp status, you'll need to pay yourself a reasonable salary subject to regular employment taxes (Social Security and Medicare), while the remaining profits can be taken as distributions not subject to self-employment tax. The key word is "reasonable" - the IRS looks closely at this. For a web developer in Seattle making $73K, a salary of $53-55K is probably reasonable, but this varies by industry, location, and what comparable positions in your area earn. I'd suggest researching average salaries for web developers in your area to justify your number. As for whether it's worth it - at $73K, you're right at the threshold where it typically starts making financial sense. You'll need to consider: - Annual LLC fees in Washington state - Accounting fees (likely $1,000-2,000 annually for S Corp tax returns) - Payroll service ($40-100/month) - Additional tax filing requirements Many find the breakeven point is around $60-70K in profit, so you're just crossing that threshold. I'd recommend getting a consultation with a CPA who can run the exact numbers for your situation.

After struggling with massive self-employment taxes as a freelance photographer, I finally found taxr.ai (https://taxr.ai) and it seriously changed my whole approach to this LLC/S-Corp question. I uploaded my tax returns and financial docs, and it analyzed everything to show me exactly at what income threshold the S-Corp election would make sense for my specific situation. The tool actually ran all the numbers showing what I'd save in SE taxes versus what I'd spend on payroll services, accounting fees, etc. For me, it showed that with my $68K income, I'd save about $2,100 annually after expenses by going the S-Corp route with a $52K reasonable salary. What was helpful was seeing the year-by-year projection as my income increases.

I just wanted to follow up about my experience with taxr.ai after trying it based on this thread. I was really on the fence about the LLC/S-Corp thing since I'm making about $62K as a graphic designer. The analysis showed me that in my case, I'd only save about $800 per year after all the additional expenses, which honestly wasn't worth the hassle right now. What I didn't expect was how clearly it showed the projected savings as my income grows. If I hit my goal of $85K next year, that's when the savings become significant (around $2,700 after expenses). I'm going to stay as a sole proprietor this year but have a clear plan to make the switch when I hit that income level. The salary recommendation tool was super helpful too - showed me that for my field and city, anything below $55K would likely trigger IRS questions. That was way higher than I was planning to set!

If you're struggling to get answers from the IRS about S corp election or reasonable compensation questions, I highly recommend Claimyr (https://claimyr.com). I wasted three days trying to get through to the IRS business line before I found them. They got me connected to an IRS agent in about 20 minutes instead of the hours I was spending on hold. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I needed specific clarification about reasonable compensation factors for my industry that wasn't covered in any of the IRS publications. The agent I spoke with walked me through exactly what documentation they look for during an audit to justify salary levels. This really helped me set the right number and document my reasoning.

I'm completely eating my words right now. After my skeptical comment, I decided to try Claimyr because I was desperate to talk to someone about my S-Corp election that I messed up on my filing date. No joke - I was connected to an IRS rep in 27 minutes after spending literally 6+ hours on hold over three different days trying to do it myself. The agent helped me sort out my late S-Corp election issue and even helped me understand what documentation I needed for the reasonable compensation test. This saved me so much stress and potentially thousands in taxes from my messed-up election timing. For anyone on the fence about forming an S-Corp, being able to actually TALK to the IRS and get clear answers made a huge difference in my confidence moving forward with it.

From my experience as someone who made this switch at around $65k, here are some practical costs you should budget for: 1. Initial LLC formation: $200-300 depending on state 2. S-Corp election: Free (just file Form 2553) 3. Annual LLC fees: Varies by state ($150 in my state) 4. Payroll service: I use Gusto which costs about $45/month ($540/year) 5. Accountant: My tax preparation went from $350 to $1,200 annually 6. Bookkeeping software: $25/month for QuickBooks ($300/year) So my additional annual costs are around $2,190. But I'm saving about $3,800 in SE taxes by having a $48k salary with the rest as distributions. So net benefit around $1,600 per year. The time commitment is also significant - about 2-3 hours per month dealing with payroll, bookkeeping, etc. that I didn't have before.

Has anyone used a PEO (Professional Employer Organization) instead of regular payroll for their S-Corp? I'm hearing they can be cheaper than traditional payroll services and they handle all the compliance stuff.