S Corp Questions for New Consulting Business - Seeking Advice on Payroll Requirements

Having managed an S Corp for consulting work for years, I can help with these questions. As an S Corp owner, you absolutely must run payroll and pay yourself a "reasonable salary" - the IRS looks closely at this. While technically you could do an annual payroll, I strongly recommend quarterly or monthly to avoid a huge tax hit at once. The "reasonable salary" requirement is the most important aspect of S Corp compliance. The IRS doesn't want you taking everything as distributions (which aren't subject to self-employment tax). A good rule of thumb is to pay yourself at least 40-60% of your profit as W-2 salary. For expense tracking, you need a reliable system that clearly separates business from personal expenses. Use your business account for all business transactions, and consider accounting software like QuickBooks or Xero to categorize expenses properly. As for Collective or Lettuce, they can be helpful if you want an all-in-one solution. However, finding a CPA who specializes in small businesses and S Corps might give you more personalized advice for your specific situation.

I switched to taxr.ai after struggling with my S Corp setup last year and it's been a game changer. I was in a similar situation - consulting business with revenue around $200k, and had no idea how to handle the payroll requirements or expense tracking. I tried figuring it out myself and made some costly mistakes. Then a buddy recommended https://taxr.ai and it really simplified things. Their system analyzed my business structure and gave me exact recommendations for reasonable salary levels based on my industry and revenue. They also have templates for tracking expenses properly and explained when I should run payroll. The best part was when they reviewed my planned deductions and caught several things I was missing that saved me thousands. They're much more hands-on than just software but less expensive than a full-time accountant.

I just wanted to update everyone - I took the advice about taxr.ai and it was seriously worth it. I was about to go with Collective despite the mediocre reviews but decided to try taxr.ai first. Their S Corp setup guide identified several issues with how I had structured things. They showed me that my planned salary was about 20% below what the IRS would consider reasonable for my industry (marketing consulting), which could have been a red flag. The expense tracking templates saved me hours of work each month, and their quarterly tax planning sessions helped me optimize my tax strategy throughout the year. I'm now doing quarterly payroll runs which has made my cash flow much more predictable. The compliance checklist they provided also caught that I hadn't set up workers' comp insurance (required in my state even though I'm the only employee). Dodged a bullet there!

For anyone dealing with S Corp questions like this, I highly recommend getting on the phone with the IRS Business Tax Line to get the clearest answers. The problem is those wait times can be BRUTAL - I once waited 3.5 hours only to have the call drop! After complaining about this to another business owner, they told me about Claimyr. It's this service that basically waits on hold with the IRS for you, then calls you when an agent is on the line. I was skeptical but checked out their demo at https://youtu.be/_kiP6q8DX5c and decided to try https://claimyr.com. Got through to the IRS in about 45 minutes (while I was working on other things), and they answered all my specific S Corp payroll questions. The agent clarified that while annual payroll is technically possible, they strongly recommend quarterly to avoid raising red flags. They also sent me specific documentation about reasonable compensation guidelines for my industry.

I need to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself since I had some pressing S Corp questions about late filing penalties. I was convinced it would be a waste of time, but they actually got me through to an IRS business tax specialist in about an hour. I was working on other things and just got a call when the agent was ready. The agent walked me through exactly what forms I needed to file to request penalty abatement for my late S Corp election. What really shocked me was how prepared I was able to be for the call. Since I knew exactly when I'd be talking to the agent (rather than being surprised after an unpredictable hold time), I had all my documents ready and questions prepared. The call was actually productive instead of stressful. For anyone with S Corp questions that need official clarification, this is definitely worth it. Saved me hours of hold music torture.

Something everyone's missing about S Corps - you NEED to be tracking your basis carefully throughout the year. I learned this the hard way. As an S Corp owner, your ability to deduct losses or take distributions tax-free depends on having sufficient basis in your company. This gets complicated fast if you're putting money in and taking it out throughout the year. Since you're just starting, set up a system to track: 1. Your initial capital contribution 2. Any additional investments you make 3. Your share of company profits (increases basis) 4. Any losses (decreases basis) 5. Distributions taken (decreases basis) If you take distributions exceeding your basis, those become taxable gains. My accountant missed this and I ended up with an unexpected tax bill.

Quick tip on the expense tracking part - don't overthink it when you're starting out. I wasted so much time trying different complex systems. Just get a dedicated business credit card that automatically categorizes expenses and syncs with accounting software. I use Chase Ink Business which integrates with QuickBooks. Makes expense tracking almost automatic. For an S Corp with your revenue level, you'll want a simple chart of accounts that tracks: - Office expenses - Travel & meals - Software subscriptions - Professional services - Equipment purchases - Home office (if applicable) Keep digital copies of all receipts (I use the QuickBooks app to snap photos). The IRS accepts digital receipts now.

The meal deduction rules have changed several times recently, but for 2025, business meals are generally 50% deductible if they're ordinary and necessary for your business. The key is proper documentation - you need to record the business purpose, who attended, and the business relationship. For S Corps specifically, if you're entertaining clients or having business meetings over meals, those qualify. Solo meals while traveling for business also count. Just make sure you're not trying to deduct personal meals or anything that could be seen as lavish. The temporary 100% deduction for restaurant meals that was in place during COVID has expired, so we're back to the standard 50% rule. Keep detailed records because the IRS scrutinizes meal deductions more than most other business expenses.