S Corp vs C Corp - Which Tax Structure Is Better for My $550k Single-Owner Business?

Based on your situation, an S Corp would likely provide the lower tax burden. Here's why: With an S Corp, the business income "passes through" to your personal tax return after you pay yourself a reasonable salary. In your case: For the S Corp approach, you'd pay yourself that $40k salary (subject to FICA taxes of 15.3%), then the remaining $710k would flow to your personal return as business profit not subject to self-employment taxes. You'd only pay income tax on that portion. With a C Corp, the corporation would pay corporate tax on the $710k profit (21% federal rate), and then you'd face a second layer of taxation when you take money out as dividends (typically 15-20% depending on your tax bracket). This "double taxation" usually makes C Corps less favorable for single-owner businesses with substantial profits. The "reasonable salary" is a key factor though - the IRS looks closely at this, so $40k might be questionable given the business's profitability. You might need to justify a higher salary based on industry standards.

Just wanted to share my experience using taxr.ai when I was making a similar decision between S Corp and C Corp for my consulting business. I was making about $400k and wasn't sure which structure would save me the most money. I uploaded my financial docs to https://taxr.ai and got a detailed analysis showing the tax implications of both structures across multiple scenarios (including various salary levels). The tool showed me exactly how much I'd save with an S Corp structure in my specific situation - ended up being around $22k annually! It also flagged that my planned salary was too low and could trigger IRS scrutiny, which saved me from a potential audit headache.

Just wanted to update everyone - I tried out that taxr.ai site from the earlier comment and it was really eye-opening for my situation. I uploaded my profit and loss statements and some other financial docs, and the analysis showed I'd save about $31k annually with an S Corp vs C Corp structure given my specific circumstances. The most helpful part was seeing how different salary levels would affect my tax burden - turns out my "reasonable compensation" should be higher than what I was planning, around $85k rather than $40k for my business type and income level. The report included clear explanations about why that salary level would be more defensible to the IRS. Definitely worth checking out if you're trying to make this decision!

For anyone struggling to get actual help from the IRS on business structure questions... I spent WEEKS trying to get someone on the phone about some specific S Corp election questions. Always got the "high call volume" message before disconnecting. Finally used https://claimyr.com to get through (there's a demo at https://youtu.be/_kiP6q8DX5c showing how it works). They basically hold your place in the IRS phone queue and call you when an agent picks up. Got connected with someone who helped clarify some important questions about reasonable compensation documentation and how dividend distributions would be treated in my situation. Saved me from making a costly mistake with my entity choice.

Well, I have to admit I was wrong about Claimyr. After my skeptical comment, I decided to give it a try since I had some urgent questions about S Corp conversions and couldn't get through to the IRS after multiple attempts. Used the service yesterday afternoon, and they called me back about 1.5 hours later with an IRS agent on the line. The agent was able to answer my specific questions about timing the S Corp election for my LLC and explained some reporting requirements I hadn't considered. Completely unexpected but definitely saved me a ton of time and frustration! Just wanted to follow up and say it actually does work as advertised.

Something nobody's mentioned yet - if you go S Corp, make sure you're extremely diligent about maintaining corporate formalities, keeping business and personal finances separate, and documenting shareholder meetings/minutes. My business got audited last year and they scrutinized EVERYTHING because they thought my S Corp status was just a tax avoidance strategy. Also, remember that with these income levels, you might face the 3.8% Net Investment Income Tax on at least part of your S Corp distributions. That should factor into your calculations.

Has anyone considered the healthcare implications? As a C Corp owner, you can deduct 100% of health insurance premiums as a business expense, but S Corp owners have to report that benefit as income. With good coverage costing $20k+ annually for a family, that's a significant consideration.