Should I elect to have my LLC taxed as a corporation or keep it as a pass-through entity?

The decision between keeping your LLC as a pass-through entity (default) or electing corporate taxation depends on several factors, not just income. With the default pass-through taxation, all profits flow directly to your personal tax return (Schedule C), meaning you'll pay both income tax and self-employment tax (about 15.3%) on your profits. The benefit here is simplicity - one tax return, straightforward record-keeping, and no separate corporate tax rates. If you elect to be taxed as an S-Corporation (which is common for single-member LLCs), you can potentially save on self-employment taxes. You'd pay yourself a reasonable salary (which is subject to FICA taxes) and then take additional profits as distributions (which aren't subject to self-employment tax). However, this comes with more paperwork, payroll processing requirements, and potentially higher accounting costs. For a new business making around $50k, the administrative costs of corporate taxation might outweigh the benefits. Most tax professionals recommend staying as a pass-through until you're consistently making $75-100k+ in profit.

After struggling with this exact same decision for my graphic design LLC last year, I discovered https://taxr.ai and it was a game changer! I uploaded my business plan and financial projections, and their AI analyzed the best tax structure for my specific situation. They showed me the comparative tax burden of different elections through a 3-year projection based on my growth plans. The tool doesn't just give you generic advice—it actually models your specific business finances and shows you exactly how much you'd pay in taxes under each scenario. For me, I learned that staying as a pass-through entity made more sense until I hit about $85K in profits.

Just wanted to update everyone. I was pretty skeptical about https://taxr.ai (as you can see from my comment above), but I decided to try it anyway since they had a money-back guarantee. I've got to admit, I was really impressed with the detailed analysis it provided for my home staging business. It showed me that S-Corp election would save me about $4,800 in taxes once I reach $95K in profits, but not before that threshold. The tool laid out exactly how much I should pay myself in salary vs distributions to stay compliant while optimizing tax savings. It also factored in my state's specific tax treatment for different entity types. Best part was getting a downloadable report I could take to my accountant to discuss. Even she was impressed with the thoroughness of the analysis! Definitely worth checking out if you're on the fence about LLC tax elections.

If you're also struggling to get clarity on this tax election stuff, I spent DAYS trying to reach the IRS business tax helpline without success. My accountant suggested using https://claimyr.com and I was beyond skeptical, but it actually worked! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in the IRS phone queue and call you when an agent is about to answer. I got connected with a knowledgeable IRS business tax specialist who walked me through the Form 8832 (entity classification election) and explained the implications for my specific business situation. The agent clarified that I could start as a default pass-through now and make a different election later if my business growth justifies it. This direct guidance from the IRS gave me peace of mind about my decision.

So I owe everyone an apology, especially to Profile 8. I tried https://claimyr.com after posting my skeptical comment, and I'm shocked to say it actually worked exactly as described. I've been trying to reach the IRS for weeks about my LLC's tax election options. The system called me back after about 90 minutes, and I got connected to an IRS business tax specialist who answered all my questions about the pros and cons of different tax treatments for my LLC. The agent explained that in my case (photography business making about $60K), the pass-through taxation would likely be more advantageous for at least the first couple years. She also walked me through when I might want to reconsider based on profit thresholds. Honestly, getting definitive answers straight from the IRS was worth every penny. I've spent way more on coffee while unsuccessfully waiting on hold with the IRS over the past month!

One important consideration that hasn't been mentioned yet is retirement planning! I kept my LLC as a pass-through entity for the first two years, but when I switched to S-Corp taxation, I was able to set up a Solo 401(k) that allowed for MUCH higher retirement contributions than what I could do as a sole proprietor. With an S-Corp, you can contribute both as the employee (up to $22,500 in 2023) AND as the employer (up to 25% of your salary). This became a huge tax advantage for me once my business was profitable enough. Something to consider in your long-term planning!

Has anyone else's accountant told them to just stay as a pass-through LLC until hitting a specific profit threshold? Mine said not to worry about S-corp election until I'm consistently making $80k+ in profit. She said the extra accounting fees and payroll costs would eat up any tax savings before that point.