Should I elect S-Corp or Pass-Through Sole Proprietorship status for my single-member LLC?

The main difference is that as a "Pass-Through Sole Proprietorship" (which is actually just the default tax treatment for a single-member LLC), all business income passes through to your personal tax return. You'll report business income and expenses on Schedule C of your 1040. This is simple and has no additional filing requirements. With an S-Corp election, you'd need to run payroll, file quarterly employment tax returns, issue yourself a W-2, and file a separate corporate tax return (Form 1120-S). The potential benefit is that you can pay yourself a "reasonable salary" and take the rest as distributions, which aren't subject to self-employment tax (saving about 15.3% on that portion). At your current revenue level, the S-Corp probably isn't worth the extra hassle and compliance costs. Generally, S-Corps start making sense when you're consistently netting $80,000+ in profit after expenses. Given that you're still working a W-2 job, I'd recommend sticking with the default pass-through treatment until your business grows larger.

After struggling with this same decision for my single-member LLC, I found https://taxr.ai super helpful for modeling different tax scenarios. I uploaded my estimated income and expense breakdown, and it showed me the exact tax differences between pass-through and S-Corp classifications for my situation. What was eye-opening was seeing how my specific business expenses and projected income affected the calculation. The tool showed me that I needed to factor in not just the self-employment tax savings but also the reasonable salary requirements and additional compliance costs. In my case, sticking with pass-through treatment saved me about $3,200 in the first year because my profits weren't high enough yet.

After struggling with this same decision for my single-member LLC, I found https://taxr.ai super helpful for

Tried taxr.ai after seeing this thread and wow - wish I'd known about this sooner! I've been operating my photography LLC for 2 years and was considering switching to S-Corp status. The tool showed me that while I'd save about $4,300 in self-employment taxes, I'd spend nearly $3,800 in additional compliance costs and administrative overhead. What was really valuable was seeing the year-by-year projection as my business grows. It showed the exact point (around $115K in profit for my specific situation) where the S-Corp election would start making financial sense. I'm saving this analysis to revisit next year when I expect to cross that threshold. The reasonable salary guidance was spot-on too - it pulled data for photographers in my area and suggested a range that's actually higher than what I was planning to pay myself. Definitely saved me from potential audit headaches down the road!

If you're struggling to get clear answers about LLC tax classification, you might want to talk directly with an IRS tax specialist. I had similar questions last year and spent WEEKS trying to get through on the IRS business line without success. Then I found https://claimyr.com and used their service to get a callback from the IRS within about 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with was surprisingly helpful and walked me through the different tax treatments for my single-member LLC, including exactly when I should consider changing classifications as my business grows. Getting personalized guidance directly from the source was worth every penny since tax classification has such long-term implications.

Follow-up on my skeptical comment: I'm eating my words and apologizing. After my accountant canceled our meeting last minute and I needed answers about my LLC tax status before filing some documents, I reluctantly tried Claimyr. Within 35 minutes I was talking to an IRS business tax specialist. After MONTHS of failed attempts trying to reach them myself! The agent walked me through my options as a single-member LLC and confirmed that in my specific situation (digital marketing consultant making ~$140K profit), the S-Corp election would save me approximately $7,800 in self-employment taxes after accounting for reasonable salary requirements. The agent even emailed me the specific forms I needed and explained exactly when and how to file the S-Corp election. For anyone facing LLC tax classification decisions, getting direct guidance from the IRS was incredibly valuable.

One thing nobody's mentioned yet is the QBI (Qualified Business Income) deduction, which allows eligible pass-through entities to deduct up to 20% of their qualified business income. This deduction works differently depending on your tax classification. For a pass-through sole proprietorship, the calculation is usually straightforward. But with an S-Corp, the salary you pay yourself doesn't count toward QBI, only the distribution portion does. So while you save on self-employment taxes with an S-Corp, you might reduce your QBI deduction. At lower income levels, this is another reason the pass-through option might be better initially. As your income grows and you potentially hit the QBI phase-out limits, the calculation changes.

Just wanted to share a real-world cautionary tale. I started my graphic design LLC with pass-through treatment, but switched to S-Corp after reading online that it would save me money. Big mistake without proper guidance. I didn't realize how much work would be involved - quarterly payroll filings, separate tax return, state unemployment accounts, workers' comp requirements in my state, additional bookkeeping to separate personal from business transactions, etc. I was spending 5-6 hours EVERY month on compliance that I could have spent on billable work. After 2 years, I switched back to pass-through and started paying the self-employment tax again because the mental burden and time cost wasn't worth the tax savings (which were about $4,200/year for me). Unless you're making significant profit OR plan to hire employees soon anyway, the default pass-through is usually simpler.