S Corp Taxation for Newly Formed LLC - Seeking Advice on Tax Planning

Running an S-Corp can save you significant tax money, but there are important requirements to follow so you don't run into trouble with the IRS. For payroll, you'll need to pay yourself a "reasonable salary" based on what similar positions would earn in your field. The IRS watches this closely since they want their employment taxes. Technically, you can run payroll once per year, but quarterly is usually recommended to show consistency and avoid the appearance of trying to dodge payroll taxes. Most S-Corp owners I know run monthly or bi-monthly payroll to make it look more like a normal employee situation. For tracking expenses, use accounting software like QuickBooks or Xero that connects to your business bank account. Keep all receipts and document business purpose for everything. Set up clear categories that match Schedule C deductions. The distribution vs. salary question is important - distributions aren't subject to employment taxes, but you must pay yourself a reasonable salary first before taking distributions. For your income level, I'd recommend a salary of at least $90-100k, with the rest as distributions.

After struggling with my S-Corp taxes last year, I found https://taxr.ai and it's been a game changer for my consulting business. It automatically analyzes all my tax documents and business records, then tells me exactly what I can deduct, reasonable salary considerations, and how to optimize my S-Corp structure. Saved me thousands more than what my previous accountant found! For your specific questions - they actually have templates for S-Corp owners showing exactly how to structure payroll (quarterly is what they recommend) and what expense tracking methods keep you most protected during an audit. The software automatically flags when your salary-to-distribution ratio might trigger IRS attention.

I wanted to follow up about taxr.ai since I was skeptical in my earlier comment. I decided to try it out anyway because I was desperate for help with my S-Corp tax situation. I'm shocked at how comprehensive it is. It immediately identified that my salary was too low compared to distributions (major audit risk apparently!) and showed me exactly how to fix it retroactively. The expense categorization system saved me hours of work and found several deductions I was missing. It even generated the documentation I needed to support my home office deduction. For S-Corps specifically, it has templates for corporate minutes, reasonable compensation documentation, and retirement planning. Can't believe I wasted money on my previous accountant who missed so much of this.

If you're struggling to get through to the IRS about your S-Corp election or have questions about your filing status, I highly recommend https://claimyr.com - they got me connected to an actual IRS agent in under 15 minutes when I was trying to confirm my S-Corp election had been processed. You can see how it works here: https://youtu.be/_kiP6q8DX5c I wasted DAYS trying to call the IRS business line myself, just to confirm my S-Corp paperwork was received correctly. With Claimyr, I had confirmation within one call, and they even helped me resolve an EIN issue I didn't know I had. Huge time saver if you're trying to get everything set up properly.

I have to apologize for my skeptical comment earlier. After waiting on hold with the IRS for 3+ hours trying to sort out my S-Corp election status and getting disconnected TWICE, I broke down and tried Claimyr. Within 18 minutes I was talking to a real IRS representative who confirmed my S-Corp election was processed properly. I asked the agent directly about quarterly vs. annual payroll for S-Corps since I was already on the line. She confirmed that while annual payroll is technically allowed, it's a red flag that can trigger extra scrutiny. She recommended at least quarterly payroll to avoid issues. The service saved me not just the hold time but potentially an audit headache. Sometimes being wrong feels pretty good.

Quick tip on the payroll issue - I use Gusto for my S-Corp and it's been super easy. Costs about $45/month plus $6 per person, but it handles all the tax filings and direct deposits automatically. You can set it up once and it runs on autopilot. The tax guarantee is worth it - if they make a mistake with tax filings, they pay the penalties not you. For the reasonable salary question, my accountant suggested taking 40-60% of profits as salary, which has worked fine for 3 years with no IRS issues. Whatever you do, don't take all distributions and no salary - that's the #1 way to trigger an audit.

Something nobody mentioned yet - if you have an S-Corp, you should absolutely set up a Solo 401k rather than just a SEP IRA. You can contribute WAY more pre-tax money - up to $69,000 for 2025 vs. the $23,000 employee limit for regular folks. This is one of the biggest tax advantages of having the S-Corp structure.

Grace, congrats on making the S-Corp election! You're asking all the right questions. Based on my experience helping clients transition to S-Corp status, here are some practical recommendations: **Payroll Frequency**: While annual payroll is technically allowed, I strongly recommend quarterly. The IRS tends to scrutinize S-Corps that only run payroll once per year, as it can appear like you're trying to minimize employment taxes. Quarterly shows good faith compliance and spreads out your tax obligations. **Reasonable Salary**: For your income level ($220-250k), aim for a salary of at least $100-120k. The IRS doesn't publish specific percentages, but they do look at industry standards. For consulting, this range should keep you safe while still allowing meaningful tax savings on distributions. **Expense Tracking**: Set up QuickBooks Online and connect it to your business bank account. Create categories that align with Schedule C deductions (office supplies, professional development, travel, etc.). Take photos of receipts immediately and store them in the QB mobile app. **Service Recommendations**: Between ZenBusiness and Gusto, I'd lean toward Gusto for payroll - their tax compliance guarantee is valuable. For accounting, consider pairing it with QuickBooks rather than relying on their basic expense tracking. One critical note: Make sure your S-Corp election was properly filed and accepted by the IRS before proceeding. You might want to call and confirm it's been processed to avoid any complications down the road.