Should I form an LLC and file as S Corp for my 1099 contractor income?

Setting up an LLC with S Corp election is definitely worth considering in your situation, but it's not a one-size-fits-all solution. When you're making $150k as a 1099 contractor, the biggest advantage of an S Corp is saving on self-employment taxes. With regular self-employment, you pay 15.3% on all your net profit. With an S Corp, you only pay that on your "reasonable salary" while the rest can be taken as distributions that aren't subject to those taxes. The key issue I see is your living expenses requiring $105k. The IRS expects a "reasonable salary" for your industry and workload. If you need that much to live on, setting your salary significantly lower could raise red flags. Industry standards, your qualifications, and market rates all factor into what's considered reasonable. For your rental property, you generally don't need a separate LLC just for tax purposes, though some people do it for liability protection. That's more of a legal question than a tax one. The bank account separation is absolutely correct - if you form business entities, keep those finances completely separate from personal.

I was in almost the exact same situation as you last year! I was making around $140k between a couple of 1099 gigs and freaking out about taxes. I finally tried this service called taxr.ai (https://taxr.ai) that analyzed my situation and it was a game changer. They helped me understand exactly what would be considered a "reasonable salary" for my specific industry and workload, which turned out to be around $85k. This was super important because I also needed a good chunk of money for living expenses. They showed me how the S Corp structure would work with my specific numbers and how much I'd actually save. What was most helpful was that they analyzed all my deductions from my driving and other business expenses to make sure I was maximizing everything properly. The recommendations were totally customized to my situation, not just generic advice.

I was really skeptical about the whole S Corp thing too. My colleagues kept telling me I'd save so much money, but I wasn't sure if it applied to my situation. After reading about it on Reddit, I decided to try taxr.ai that someone mentioned. What surprised me was they didn't just push me toward forming an entity - they actually analyzed my specific driving patterns, expense structure, and income levels. In my case, I was driving about 20,000 miles per year for business, and they showed me how to properly document and deduct that alone saved me a ton. For my S Corp salary, they recommended $90k based on my industry benchmarks (I'm in IT consulting), which was perfect since it covered most of my living expenses while still letting me take some distributions. They even provided documentation to support this salary level if I ever got audited. The amount I saved in taxes paid for itself many times over. Wish I had done this years ago instead of overpaying!

I spent WEEKS trying to get through to the IRS about some questions related to forming an S Corp. It was a nightmare. I'd wait on hold for hours only to get disconnected. Finally tried this service called Claimyr (https://claimyr.com) that got me a callback from the IRS without the wait. You can see how it works here: https://youtu.be/_kiP6q8DX5c It actually worked! I got through to an IRS agent who answered all my S Corp election questions. Found out I needed to file Form 2553 within a certain timeframe to elect S Corp status for the current tax year. The agent also explained exactly how the reasonable salary requirements work for my specific industry. I was surprised at how helpful the IRS agent was once I actually got to speak with a human. They walked me through the potential audit triggers they look for with S Corps (mainly unreasonably low salaries) and gave me guidance on documentation I should keep.

I was the biggest skeptic about this Claimyr service. Thought it was complete BS because I've wasted DAYS of my life on hold with the IRS trying to get help with my business tax questions. But I was desperate with S Corp filing deadlines approaching, so I tried it. Holy crap it actually works! Got a callback from an IRS agent in about 90 minutes. The agent walked me through exactly how to handle my situation with multiple 1099s and whether I needed one LLC or separate ones. For what it's worth, the agent told me if the businesses are related, a single LLC with S Corp election is often cleaner. But if they're completely different industries, separate entities might make more sense. For the rental property, they suggested looking into a separate LLC for liability reasons, but said it usually doesn't make sense to elect S Corp status for just rental income. Saved me from making a costly mistake with my business structure. Worth every penny just for the time saved alone.

One thing nobody has mentioned yet is that having an S Corp means you'll need to run payroll (either DIY or hire a service), file quarterly payroll tax returns, issue yourself a W-2, and file a separate tax return for the business. There are also state filing requirements and possibly annual fees. For your income level, these extra costs might eat into some of the tax savings. At $150k, you're right at the threshold where it starts to make sense. What I did was start with an LLC (simple, single-member) for the first year, tracked all my expenses carefully, then upgraded to S Corp status in year two when I had a better handle on my true profitability.

So I was in your exact position last year driving for multiple 1099 contracts. Here's what I learned about the vehicle expenses specifically since you mentioned doing a lot of driving: With an LLC/S-Corp, you have two options for vehicle expenses: 1. Actual expenses: track all gas, maintenance, insurance, depreciation, etc. 2. Standard mileage rate: use the IRS rate (65.5 cents per mile for 2023) The standard rate is usually better for high-mileage newer vehicles. If you're driving 20k+ business miles per year, that's a $13,000+ deduction just from mileage! Either way, you need a mileage log. I use MileIQ app but there are tons of options.

I'd suggest being really careful about that $13k shortfall you discovered - that's a significant gap that could lead to penalties and interest if not addressed quickly. You might want to make an estimated tax payment ASAP for Q4 if you haven't already. Regarding the LLC/S-Corp decision, at $150k income it's definitely worth considering, but don't rush into it without understanding all the implications. The tax savings can be substantial (potentially $5k-10k annually), but there are ongoing compliance costs and responsibilities. One thing that might help: since you're already tracking business miles for your driving, make sure you're maximizing that deduction regardless of your entity structure. With significant business driving, you could easily have $10k+ in vehicle-related deductions alone. For the rental property, your colleague is probably right - most people don't need a separate LLC just for one rental from a tax perspective. The liability protection aspect is separate from taxes though. Given your tight cash flow situation ($105k needed for expenses), I'd recommend getting a proper analysis done before making any entity changes. The "reasonable salary" requirement for S-Corps could impact your cash flow planning significantly.