New Business Owner: When to File for S Corp Status During EIN Application?

3 Thanks for the explanation! So I need to form my LLC with the state first before I can even apply for S Corp status? How long does the whole process usually take from forming the LLC to getting approved as an S Corp? And is there a deadline during the year when I need to file the Form 2553?

15 The timeline varies by state, but forming an LLC typically takes 1-3 weeks. After that, getting your EIN is usually instant if done online. For S Corp election timing, there's an important deadline: you must file Form 2553 no later than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the preceding tax year. For existing businesses wanting S Corp status for the full 2025 tax year, you'd need to file by March 15, 2025.

17 Does taxr.ai help with the actual filing paperwork too or just the planning part? I'm in a similar situation but I'm terrible with forms and would love something that helps me actually complete all the paperwork correctly.

22 Did you find that using taxr.ai was actually worth it compared to just hiring an accountant? I've heard mixed things about these online tools and I'm worried about missing something important that could come back to bite me later.

8 They help with both the planning and the actual filing paperwork! You can either use their guided interface to complete the forms yourself, or they can connect you with a professional who'll handle everything for you based on the information you provide. The value compared to hiring an accountant directly really depends on your situation. For me, I liked that I could understand each step rather than just handing everything over. Their system flags potential issues specific to your situation that some accountants might miss if they're using a one-size-fits-all approach. Plus it cost significantly less than the quotes I got from local accountants.

7 I'm confused - how does this actually work? Does it just call the IRS for you? Couldn't you just call them yourself and wait on hold?

6 This sounds like BS honestly. There's no way to "skip the line" with the IRS. They're notoriously understaffed and everyone has to wait. I'm skeptical that this service actually does anything you couldn't do yourself.

12 It doesn't just call for you - they use a system that monitors IRS phone queues across their various lines and connects when an agent becomes available. When you call yourself, you're stuck in a single queue. You absolutely could call yourself - if you have hours to sit on hold. My time is worth something to me, and being able to go about my day until they text me that an agent is on the line was worth every penny. Think of it like those restaurant services that hold your place in line and text you when your table is ready versus standing in line yourself for hours.

9 What do you mean by "reasonable salary"? Is there a specific amount or percentage I need to pay myself versus taking as distributions? I'm concerned about how to determine this correctly.

14 The IRS requires S Corp owners to pay themselves a salary that's "reasonable" for the work they do and industry they're in. There's no exact formula, but it should be comparable to what you'd pay someone else to do your job. A common approach is to start at around 50-60% of your business profits as salary, with the rest as distributions (which aren't subject to self-employment tax). But it really depends on your industry, location, and role. Too low a salary is a red flag for IRS audit, so you want to find the right balance. Many accountants suggest researching salary surveys for your field to document how you determined your "reasonable" salary.

5 That's what I did too! Much simpler paperwork with my state. Just make sure you check the "tax as S Corporation" box on Form 8832 before filing Form 2553. The IRS agent I spoke with said they see a lot of rejections because people forget that step.

This is incredibly helpful, thank you! The income threshold point really hits home for me. I'm currently making around $45k from my consulting business, so it sounds like I might be jumping the gun on the S Corp election. Question about the state tax research - are there any specific resources you'd recommend for checking how my state handles S Corp elections? I'm in California and I've heard they can be particularly tricky with business taxes. Also, when you mention keeping records for "reasonable salary" - what specific documentation did you find most useful? I want to make sure I'm tracking the right information from the start.

Great questions, Mei! For California specifically, you'll definitely want to check the Franchise Tax Board website - CA has some unique rules around S Corps. They charge an annual $800 minimum franchise tax regardless of income, plus additional fees based on gross receipts once you hit certain thresholds. This can significantly impact whether S Corp election makes financial sense. For salary documentation, I kept a spreadsheet tracking: 1) Industry salary surveys from sites like PayScale, Glassdoor, and BLS.gov for my role/location, 2) Screenshots of job postings for similar positions, 3) Any contractor rates I was charging clients (helps justify owner salary), and 4) Documentation of actual hours worked vs. business management time. At $45k, you're probably right to hold off on S Corp election. The CA franchise tax alone would eat into a big chunk of your potential self-employment tax savings. Maybe revisit when you're consistently hitting $70k+ given CA's additional costs.

Great questions! For California specifically, you'll want to check the Franchise Tax Board (FTB) website - CA doesn't automatically recognize federal S Corp elections and has its own Form 3560 you need to file. Plus there's an annual $800 minimum franchise tax regardless of income, which can eat into your tax savings significantly. For reasonable salary documentation, I keep a spreadsheet with: - Job postings for similar roles in my area (screenshot/save the PDFs) - Bureau of Labor Statistics data for my occupation code - Any industry salary surveys I can find - Documentation of my actual duties/responsibilities The key is showing you researched what others in similar positions earn. I update this quarterly so I have a good paper trail if the IRS ever questions my salary decisions. At $45k, you're probably right to hold off on S Corp election. The compliance costs alone (payroll processing, additional tax prep, etc.) might outweigh the self-employment tax savings at that income level.

For California specifically, you'll want to check the Franchise Tax Board (FTB) website - they have detailed info on how CA treats S Corps. Fair warning: California charges an annual $800 minimum franchise tax for S Corps regardless of income, plus a 1.5% tax on S Corp income over $100k. This can really eat into your tax savings! For reasonable salary documentation, I keep a spreadsheet with: - Salary data from sites like Glassdoor, PayScale, and Bureau of Labor Statistics for my role/location - Screenshots of job postings for similar positions in my area - Industry salary surveys (many trade associations publish these) - Records of what I actually do vs. what an employee would do At $45k, you're probably better off staying as a sole proprietor for now. The CA franchise tax alone would wipe out a big chunk of any self-employment tax savings. Maybe revisit when you hit $65-70k+?

Great questions! For California specifically, you'll want to check the FTB (Franchise Tax Board) website - CA actually imposes a 1.5% tax on S Corp income plus a minimum $800 annual fee, which can significantly impact the savings calculation. The CA FTB has a good comparison tool showing the differences between entity types. For reasonable salary documentation, I keep a spreadsheet with: - Industry salary surveys from sites like PayScale, Glassdoor, and Bureau of Labor Statistics - Job postings for similar roles in my area - Hours worked vs. time spent on ownership/administrative tasks - Any salary surveys specific to my industry (there are often professional association reports) At $45k, you're probably right to wait - especially in California with their additional S Corp taxes. I'd focus on growing the business first and revisit the S Corp election when you're consistently hitting $60k+ annually. The compliance costs and CA taxes might eat up most of your savings at your current income level.

Great questions! For California specifically, you'll want to check the California Franchise Tax Board website - they have a section on S Corp elections. California does recognize federal S Corp elections, but they impose an annual $800 minimum franchise tax plus a fee based on gross receipts once you hit certain thresholds. This can definitely impact whether S Corp status makes sense for your income level. For "reasonable salary" documentation, I've been collecting: - Salary surveys from sites like PayScale, Glassdoor, and industry-specific resources - Job postings for similar roles in my area - Bureau of Labor Statistics data for my occupation - Any contractor rates I've seen for comparable work The key is showing you did research to determine market rates rather than just picking an arbitrary number. At $45k, you're probably right to wait - the additional compliance costs and CA's franchise tax might eat up most of your potential savings right now.

Great questions! For California specifically, you'll want to check the California Franchise Tax Board website - they have detailed info on how they treat S Corps. California actually requires a separate state S Corp election (Form 3556) and charges an annual minimum tax of $800 plus additional fees based on gross receipts, which can eat into your tax savings significantly. At $45k, you're right to be cautious. In California especially, the state fees might wipe out most of your federal self-employment tax savings until you're making closer to $70-80k annually. For reasonable salary documentation, I've been tracking: - Bureau of Labor Statistics wage data for my occupation/location - Salary surveys from professional associations in my field - Job postings for similar roles in my area - What I actually pay contractors/employees for similar work I keep a simple spreadsheet with sources and dates so I can show the IRS exactly how I determined my salary if ever questioned. The key is being able to prove you used objective market data rather than just picking an arbitrary number.

Great questions! For California specifically, you'll want to check the CA Franchise Tax Board website - they have detailed info on how they treat S Corps. California does recognize federal S Corp elections, but they charge an annual minimum franchise tax of $800 regardless of income, plus additional fees based on gross receipts. So factor that into your cost-benefit analysis! For reasonable salary documentation, I've been tracking: - Salary surveys from sites like PayScale, Glassdoor, and Bureau of Labor Statistics for my role/industry - What I actually do day-to-day (since owner-employees often wear multiple hats) - Local market rates for consultants in my field - Screenshots/printouts of job postings for similar positions At $45k, you're probably right to wait. Between CA's $800 minimum tax, payroll processing costs, and additional accounting fees, you might not see net savings until you're closer to $70k+ in CA specifically. The tax savings need to exceed all those extra costs to make it worthwhile.

For California specifically, I'd recommend checking the California Franchise Tax Board website - they have a section on S Corp elections. CA does recognize federal S Corp elections but has their own requirements and fees (currently $800 minimum franchise tax). You'll also want to look into CA's employment taxes since you'll be on payroll. For salary documentation, I've been keeping: 1) screenshots of job postings for similar roles in my area, 2) salary survey data from industry associations, 3) what I charged clients vs. time spent (to show the value of my work), and 4) any contractor-to-employee salary comparisons I can find online. At $45k, you're right to be cautious. The self-employment tax savings might not offset the added compliance costs yet. Maybe revisit when you hit $55-60k consistently?

For California specifically, you'll want to check the Franchise Tax Board (FTB) website - they have detailed info on how CA treats S Corps. California does recognize federal S Corp elections, but they impose an additional $800 annual franchise tax plus a fee based on gross receipts (can be substantial once you hit certain revenue thresholds). So factor that into your calculations! For reasonable salary documentation, I've been tracking: 1) Industry salary surveys from sites like PayScale, Glassdoor, and Bureau of Labor Statistics for my job function, 2) Screenshots of job postings for similar roles in my area, 3) Any consultant rate surveys specific to my industry. I keep these in a dedicated folder with the dates I collected them. At $45k, you're right to hold off - the CA franchise tax alone might eat up a good chunk of any self-employment tax savings at your current income level. Maybe revisit when you're consistently hitting $70k+ given CA's additional costs.

For California specifically, you'll want to check the Franchise Tax Board (FTB) website - they have detailed info on how CA treats S Corps. Fair warning: California has an annual $800 minimum franchise tax for S Corps regardless of income, plus additional fees based on gross receipts once you hit certain thresholds. For reasonable salary documentation, I kept a spreadsheet with: - Job postings for similar roles in my area with salary ranges - Bureau of Labor Statistics data for my occupation/region - Any industry salary surveys I could find - Documentation of my actual duties and hours worked At $45k, you're probably right to wait. The CA franchise tax alone would eat into your savings significantly. I'd suggest revisiting the S Corp election once you're consistently above $65-70k to account for CA's additional costs. The good news is you have time to plan and document everything properly before making the switch!

For California specifically, you'll want to check the Franchise Tax Board (FTB) website - they have detailed info on how CA treats S Corps. Fair warning: California charges an annual $800 minimum franchise tax for S Corps regardless of income, plus a net income tax. So factor that into your calculations! For reasonable salary documentation, I keep a spreadsheet with: - Salary surveys from sites like Glassdoor, PayScale, and Bureau of Labor Statistics for my role - Screenshots of job postings for similar positions in my area - Industry reports when available - Notes on my actual responsibilities and hours worked The key is showing you did research to determine market rate. I also track my total business income monthly so I can demonstrate the salary vs. distribution split makes sense. At $45k, you're probably better off waiting until you hit that $60k+ range - the CA franchise tax alone might eat up a big chunk of your potential savings!

For California specifically, I'd recommend checking the California Franchise Tax Board website - they have a section dedicated to S Corp elections. CA is one of those states that generally follows federal S Corp treatment, but they do have their own annual minimum tax ($800) that applies regardless of income, plus additional fees based on gross receipts once you hit certain thresholds. For the reasonable salary documentation, I started keeping a spreadsheet with: - Job postings for similar roles in my industry/location with salary ranges - Bureau of Labor Statistics data for my occupation code - Any contractor vs employee rate comparisons I could find - Screenshots of salary survey websites (even the free ones like Glassdoor) I also track the actual hours I spend on different business activities to show the IRS that my salary reflects real work performed. My accountant said having this documentation upfront makes any potential audit much smoother. At $45k, you're probably right to hold off on the S Corp election for now. The self-employment tax savings might not outweigh the additional compliance costs and complexity until you're closer to that $60k+ range.

Great questions! For California specifically, I'd definitely check the California Franchise Tax Board website - they have some quirky rules about S Corps that differ from federal treatment. California charges an annual $800 minimum franchise tax for S Corps regardless of income, plus additional fees based on gross receipts. At your $45k income level, you'd want to factor that $800 minimum into your calculations. For reasonable salary documentation, I kept a simple spreadsheet tracking: 1) Job postings for similar roles in my area with salary ranges, 2) Industry salary surveys (Bureau of Labor Statistics is free and credible), 3) What I'm actually doing day-to-day (since "reasonable" relates to the work performed), and 4) Any salary data from professional associations in my field. The key is being able to show the IRS that you researched comparable positions and can justify your salary decision. I update this quarterly when I review my business financials. Better to have too much documentation than too little if they ever ask! At $45k, you're probably right to wait a bit before making the S Corp election. The tax savings might not outweigh the additional compliance costs and that California franchise tax yet.

Great questions! For California specifically, you'll want to check the FTB (Franchise Tax Board) website - CA has some quirks with S Corp treatment. They generally follow federal S Corp rules but have their own minimum franchise tax ($800 annually) that applies regardless of income. There's also a 1.5% tax on S Corp income over $50k that can eat into your savings. For reasonable salary documentation, I've been tracking: 1) Bureau of Labor Statistics data for my occupation/region, 2) salary surveys from industry associations, 3) job postings for similar roles in my area, and 4) what I was earning as an employee before going freelance. The key is showing you researched market rates rather than just picking a number. At $45k, you're right on the borderline. With CA's additional S Corp costs, you might want to wait until you're consistently hitting $55-60k to make the math work in your favor. The self-employment tax savings might get wiped out by the extra compliance costs and CA's S Corp taxes.

Great questions! For California specifically, you'll want to check the California Franchise Tax Board (FTB) website - they have a section dedicated to S Corporation taxation. CA does recognize federal S Corp elections but has its own additional requirements and fees (minimum $800 annual franchise tax even if you have no income). The FTB publication 100 is a good starting point. For reasonable salary documentation, I've been tracking: - Industry salary surveys from sites like PayScale, Glassdoor, and Bureau of Labor Statistics for my specific role/location - Screenshots of job postings for similar positions in my area - Any professional association salary reports for my industry - Documentation of hours worked and responsibilities Since you're at $45k, you're right to hold off on S Corp election for now. Many tax pros suggest waiting until you're consistently above $60k to make the additional compliance costs worthwhile. You can always elect later when your income grows!

Great questions! For California specifically, you'll want to check the Franchise Tax Board website - CA doesn't automatically recognize federal S Corp elections and has its own requirements. California S Corps pay a minimum $800 annual tax plus 1.5% tax on net income over $50k, which can significantly impact whether it's worthwhile at your income level. For reasonable salary documentation, I've been tracking: - Salary surveys from sites like PayScale, Glassdoor, and industry associations - Job postings for similar roles in my area - What I pay contractors/employees for comparable work - My actual time spent on different business functions vs management At $45k, you're probably better off staying sole proprietor for now. The CA minimum tax alone would eat into your savings, and once you factor in payroll processing costs, you might not see real benefits until you're closer to $70-80k in CA specifically. I'd suggest revisiting the S Corp question next year if your income grows!

Great questions! For California specifically, you'll want to check the Franchise Tax Board (FTB) website - CA does recognize S Corp elections but they have their own additional requirements and fees. California charges an annual S Corp fee based on gross receipts (starts at $800 minimum), plus the regular LLC fee if you go the LLC route. Definitely factor that into your cost analysis! For reasonable salary documentation, I've been tracking: - Industry salary surveys from sites like PayScale, Glassdoor, and Bureau of Labor Statistics - Job postings for similar roles in my area - What I was paying contractors/employees for similar work - Screenshots of relevant salary data with dates At $45k, you're probably right to wait. The general consensus I've seen is that the tax savings don't typically outweigh the compliance costs until you're consistently over $50-60k. Plus California's additional fees make the threshold even higher there. One thing that helped me was using a tax calculator to model different scenarios - showed me exactly how much I'd save at different income levels versus the extra costs. Really eye-opening!

Great questions! For California specifically, you'll definitely want to be careful - CA doesn't automatically recognize federal S Corp elections and has its own requirements. I'd recommend checking the California Franchise Tax Board website (ftb.ca.gov) and looking into Form 3522 which is CA's S Corp election form. CA also has minimum franchise taxes that apply regardless of income, so factor that into your calculations. For reasonable salary documentation, I started keeping a folder with: - Salary surveys from sites like PayScale, Glassdoor, and industry-specific sources - Job postings for similar roles in my area - Any contractor rates I was quoting or seeing in my field - Documentation of my actual work responsibilities and hours At $45k, you're probably right to wait a bit. The self-employment tax savings might not outweigh the additional compliance costs and CA's franchise tax requirements. Maybe revisit when you hit that $60k+ threshold!

Great questions! For California specifically, you'll want to check the California Franchise Tax Board website - they have detailed info on S Corp elections. CA does recognize federal S Corp elections, but they impose a minimum $800 annual franchise tax plus a 1.5% tax on S Corp income over $100k. So factor that into your calculations! For "reasonable salary" documentation, I've been collecting: 1) Bureau of Labor Statistics data for my occupation/area, 2) salary surveys from industry associations, 3) job postings for similar roles, and 4) what I paid contractors for similar work. Keep screenshots/PDFs with dates - the IRS loves documentation. At $45k, you're probably right to wait. The self-employment tax savings might not outweigh the additional compliance costs and that CA franchise tax. Consider revisiting when you hit $60-70k consistently.

Great questions! For California specifically, you'll want to check the Franchise Tax Board (FTB) website - CA does recognize S Corp elections but they have their own additional requirements and fees. California charges an annual $800 minimum franchise tax for S Corps regardless of income, plus additional fees based on gross receipts once you hit certain thresholds. At $45k, you're probably right to wait on the S Corp election. The general break-even point factors in that $800 CA fee plus the additional compliance costs. For reasonable salary documentation, I started tracking: - Industry salary surveys from sites like PayScale, Glassdoor, and Bureau of Labor Statistics - Job postings for similar roles in my area - What I pay contractors/employees for similar work - Time logs showing hours spent on different business activities The key is being able to show the IRS you researched market rates and can justify your salary decision. Save everything in a dedicated folder - you'll thank yourself later if you ever get audited!

Great questions! For California specifically, you'll want to check the Franchise Tax Board (FTB) website - they have detailed info on how CA treats S Corps. Fair warning: California charges an annual $800 minimum franchise tax for S Corps regardless of income, plus a fee based on total income that can get expensive quickly. This is why that income threshold is so important in CA! For reasonable salary documentation, I've been tracking: - Salary surveys from sites like PayScale, Glassdoor, and industry-specific surveys - Job postings for similar roles in my area - What I charged clients vs. what I'd need to pay someone else to do that work - Hours worked in different capacities (owner/manager duties vs. actual service delivery) At $45k, you're probably right to wait on the S Corp election in California. The $800 franchise tax alone eats into your potential savings, and you'd likely need to be closer to $70-80k in CA to make it worthwhile after all the additional costs and complexities.

Great questions! For California specifically, you'll want to check the Franchise Tax Board (FTB) website - they have detailed info on how CA treats S Corps. Fair warning: California charges an annual $800 minimum franchise tax for S Corps regardless of income, plus additional fees if your gross receipts exceed certain thresholds. This could easily wipe out any federal tax savings at your current income level. For "reasonable salary" documentation, I started collecting: - Salary surveys from sites like PayScale, Glassdoor, and industry-specific associations - Bureau of Labor Statistics data for my occupation/location - Job postings for similar roles in my area - Screenshots of all this data with dates At $45k, you're probably better off staying as a sole proprietor or LLC for now. The $800 CA franchise tax alone would eat up a chunk of your potential savings, and you'd still have all those compliance costs others mentioned. Maybe revisit S Corp election when you hit $70k+ to account for CA's extra costs.