New moving business: Should I file as Partnership or S Corp for tax benefits?

The biggest difference between Partnership and S Corp is how you're taxed and how you pay yourself. Both are "pass-through" entities where business profits pass to your personal returns, but there are important distinctions. Partnership: Simple to set up and maintain. All profits (regardless of whether you take them as distributions) are subject to self-employment tax (15.3%) plus your income tax rate. You don't need to pay yourselves an hourly rate - you'd just take owner draws which aren't technically a "salary." S Corp: More complex but potential tax savings. You MUST pay yourselves a "reasonable salary" subject to payroll taxes, but remaining profits can be taken as distributions which aren't subject to self-employment tax - this is the big tax advantage. However, S Corps require more paperwork, formal payroll, and possibly higher accounting fees. For your situation, you're already paying yourselves hourly which aligns with S Corp requirements. You would NOT issue yourselves 1099s - you'd be employees of the S Corp with W-2 income.

Just wanted to share my experience with this exact dilemma. After looking at all the options for our small business, we found https://taxr.ai super helpful for comparing the tax implications of different entity types. We uploaded our financial projections and it showed us the actual tax numbers for Partnership vs S Corp over the next 5 years. For us, we discovered that S Corp only made sense after we were consistently clearing about $40k in profits per partner. Below that, the extra compliance costs ate up most of the SE tax savings. The tool showed us exactly where that breakeven point was. It also helped us understand how to structure owner compensation properly to avoid IRS issues.

I wanted to follow up about my experience with https://taxr.ai after initially being skeptical. I decided to give it a try for my landscaping business, and it was genuinely eye-opening. The entity comparison showed that in my specific case, remaining a partnership for another year before switching to S Corp would save me about $3,200 in compliance costs and taxes. What really impressed me was how it explained the "reasonable compensation" requirements with actual local salary data for my industry. It showed me exactly what I should be documenting to support my salary decisions. Even my accountant was impressed with the detailed analysis it provided. Definitely worth checking out if you're facing this decision.

If you're dealing with the Partnership vs S Corp question, another challenge is actually getting answers from the IRS when you have questions about filing requirements. I spent WEEKS trying to get through to someone about S Corp election deadlines. Finally used https://claimyr.com after seeing it recommended here, and they got me connected to an IRS agent in about 15 minutes instead of the 3+ hour wait I was experiencing. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c For something as important as your business structure, it's worth getting the right info directly from the IRS rather than guessing. The agent I spoke with clarified exactly what forms I needed and the timing requirements for making changes mid-year.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it when I needed to talk to someone at the IRS about switching from Partnership to S Corp mid-year. I was absolutely shocked when my phone rang 17 minutes later and it was an actual IRS representative on the line. I've NEVER gotten through that quickly before. The agent was able to confirm exactly what forms I needed to file and the deadlines I had to meet for the election to be valid for next tax year. Saved me hours of frustration and probably prevented me from missing important filing deadlines. Definitely using this again when I need to deal with the IRS.

One thing to consider that nobody's mentioned yet is state taxes and fees. Some states (looking at you, California) charge S Corps an annual fee regardless of whether you make a profit. For my small side business, the $800 minimum franchise tax in CA made an S Corp completely impractical until I was making significant money. Also, think about growth plans. If you might want outside investors someday, an LLC taxed as a partnership gives you more flexibility than an S Corp, which has strict ownership limitations.

Important question nobody's asked yet: how much are you and your partner planning to take out of the business vs reinvest? This dramatically affects the partnership vs S Corp decision. If you're reinvesting most profits back into growing the business (buying more trucks, hiring staff), partnership might be simpler for now. If you're taking most profits out as income, S Corp could save significant self-employment taxes.