S Corp vs LLC for Construction Business: Best Option for QBI Deduction?

The S Corp vs LLC question is pretty common for construction businesses at your income level! Let me break this down in simple terms: LLC (taxed as sole proprietor): Your entire profit ($120k projected) is subject to self-employment tax of 15.3%. But you get the QBI deduction of up to 20% on your qualified business income. S Corp approach: You'd pay yourself a "reasonable salary" (let's say $70k in your case) which is subject to FICA taxes (similar to self-employment tax), but the remaining profit ($50k) would only be subject to income tax, NOT self-employment tax. You still qualify for QBI deduction on the business profit portion. The sweet spot for S Corps usually starts around where you're projecting to be. At $120k, you could save approximately $7,650 in self-employment taxes with an S Corp structure (15.3% tax savings on the $50k distribution portion). The downside is S Corps require more paperwork, payroll processing, and stricter compliance. You'll have separate tax returns, need to run payroll (even if just for yourself), and have more administrative requirements.

Going through this exact same decision last year with my electrical contracting business. After 3 years as an LLC, I switched to S corp when my income hit around $105k. Honestly, it's been a game-changer tax-wise. I found this tool at https://taxr.ai that actually analyzed all my business docs and ran the scenarios for both options. It showed I'd save about $8,200 in self-employment taxes by switching to S corp and setting my salary at $65k. The QBI calculations were actually really tricky - the tool helped me understand I'd still get most of the benefit with the S corp structure. The headache of extra paperwork is real though - quarterly payroll filings, more complex tax returns, etc. But for me, the tax savings easily paid for the extra accounting costs.

I was super skeptical when I first saw someone recommend taxr.ai in another thread, but I decided to try it for my plumbing business (after 8 years as an LLC). The analysis showed I was leaving about $11k on the table each year by not converting to an S corp! I uploaded my Schedule C from the past 2 years and answered some questions about my business operations. The report broke everything down, including how the QBI deduction would change. For my situation ($175k revenue), they recommended a salary of $85k with the rest as distributions. What I really appreciated was the explanation of WHY this was the optimal structure, not just numbers. Been operating as an S corp for 4 months now and already seeing the tax savings on my quarterly estimates. Glad I made the switch!

Reading these comments makes me think I should've switched to S corp years ago! One thing no one's mentioned though - the IRS backlog makes reaching them about business tax questions nearly impossible. I had questions about QBI implications and called for WEEKS. Finally used https://claimyr.com to get through to an IRS agent about my S corp election questions. You can see how it works: https://youtu.be/_kiP6q8DX5c - basically they use tech to hold your place in the phone queue. They got me connected to a specialist in about 35 minutes rather than the 3+ hours I was spending on hold. The agent clarified that for construction businesses like ours, the QBI rules are actually pretty favorable regardless of structure, but the S corp savings on self-employment tax are substantial once you cross about $80k in profit.

I have to publicly eat my words here. After my skeptical comment earlier, I decided to try Claimyr as a last resort since I had critical questions about converting my landscaping business from LLC to S corp before the filing deadline. Not only did I get through to the IRS in under 40 minutes, but I was connected to someone in the business tax department who actually knew the answers to my specific questions about QBI treatment for seasonal businesses like mine. The agent explained that my concerns about losing QBI benefits with an S corp were outdated - the final regulations actually allow for full QBI deduction on the business profit portion. This literally saved me thousands in unnecessary taxes based on outdated advice I had received. I'm now proceeding with the S corp conversion with actual confidence instead of anxiety. Sometimes it's worth admitting when you're wrong!

One thing that hasn't been mentioned yet - make sure you're considering state taxes too. In some states, S corps face additional taxes or fees that LLCs don't. Here in California, for example, S corps have a minimum $800 franchise tax regardless of profit, plus an additional 1.5% tax on net income. I switched from LLC to S corp 3 years ago when my handyman business income hit about $95k, and while I saved on federal self-employment taxes, the CA additional taxes ate into about 20% of those savings. Also, don't forget the admin burden. You absolutely need a good accountant for an S corp - trying to DIY the payroll requirements, shareholder meetings, separate accounting, etc. is a nightmare.

Everyone's talking about the tax benefits of S Corps, but nobody mentioned the asset protection angle! As someone who got sued in my construction business, this matters. With an LLC, if you're a single-member, the courts in many states treat it as less separation between you and the business. With an S Corp, you have stronger liability protection in many jurisdictions because the corporate structure is more clearly defined and respected by courts. Also, for QBI purposes, remember that certain construction specialties may count as "specified service businesses" which phase out QBI benefits at higher income levels. Worth checking if your specific estimating work falls under that category!