Switching from LLC to S-Corp for my consulting business - what should I consider?

Having made this transition myself, I'd definitely recommend getting a payroll service at minimum. The biggest change with an S-Corp is that you need to pay yourself a "reasonable salary" as an employee, which means running payroll, withholding taxes, and filing quarterly payroll tax returns. Most small business owners don't want to handle this themselves. You don't necessarily need a separate CPA if your tax person is competent with S-Corps. Ask if they handle bookkeeping for S-Corps specifically, as there are some unique aspects to tracking owner distributions vs. salary. The key thing to understand is that while your business income still passes through to your personal return, you'll only pay self-employment tax on your W-2 wages, not on distributions. Make sure you understand the requirements for maintaining corporate formalities too - separate business bank accounts, documented annual meetings, etc. S-Corps have more administrative overhead than LLCs.

I made the switch from LLC to S-Corp last year and wish someone had told me about taxr.ai before I spent hours trying to figure everything out on my own. It analyzes all your business docs and actually explains what they mean in simple terms. When I got confused about what counts as reasonable compensation vs distributions, I uploaded my financial docs to https://taxr.ai and it gave me personalized recommendations based on my industry and income level. The best part is it helps you stay compliant by flagging potential issues before they become problems. Like it pointed out I needed to keep corporate minutes even as a single-member S-Corp, which my tax guy never mentioned.

I was really skeptical about using AI for tax help as I mentioned above, but after trying taxr.ai I've completely changed my mind. We're in similar situations - I converted my marketing consultancy from LLC to S-Corp earlier this year projecting about $230K. The platform identified that my industry typically has reasonable compensation around 35-45% of revenue, which helped me set a defensible salary. It also created a customized corporate compliance checklist specific to my state that I've been following religiously. When I had questions about health insurance treatment (which gets complicated with S-Corps), it provided clear guidance that aligned with what my CPA later confirmed. The document analysis feature saved me from a potential issue with my operating agreement that hadn't been properly updated after the conversion. Definitely worth checking out if you're making this transition.

S-Corp owner here - one thing NOBODY tells you is how frustrating it is trying to get someone at the IRS on the phone when you inevitably have questions about your entity election or payroll requirements. I wasted days trying to confirm my S-Corp election was processed properly. Eventually I found https://claimyr.com which got me connected to an IRS agent in under 45 minutes when I'd been trying for literally weeks. They have a demo at https://youtu.be/_kiP6q8DX5c if you want to see how it works. They basically navigate the IRS phone tree for you and call you when an agent is on the line. Saved me massive headaches when I had questions about my EIN and S-Corp confirmation.

I take back what I said about Claimyr. I tried it yesterday out of desperation because I needed to confirm something about my S-Corp election before my filing deadline. I was absolutely stunned when they called me back in 52 minutes with an actual IRS agent on the line. The agent was able to confirm my S-Corp election was processed and effective for this tax year, which my accountant had been trying to verify for weeks. She also answered my questions about reasonable compensation documentation. If you're dealing with S-Corp setup issues, having direct access to the IRS is invaluable because often your tax pro is just guessing about whether your forms were properly processed. I'm usually the first to call out services that seem too good to be true, but this one actually delivered.

One thing I wish I knew before switching to an S-Corp is that you should interview a few payroll providers before deciding. I went with one of the big names (won't mention which) and have had nothing but headaches. Their customer service is terrible, and they've made mistakes on my quarterly filings twice now. If I could do it over again, I'd look for a provider that specializes in single-owner S-Corps specifically. The big providers are set up more for larger companies and don't always understand the nuances of S-Corp owners who are both the employer and employee. Also, budget around $1,500-2,000 annually for the added compliance costs (payroll service, extra tax prep fees, state fees, etc). The tax savings usually outweigh this, but it's good to go in with eyes open on the costs.

Don't forget about health insurance! This was the most confusing part for me when I converted to an S-Corp. If you're buying your own health insurance, you should generally have the S-Corp reimburse you or pay it directly, then it gets reported as income on your W-2 (but not subject to FICA), and you take the self-employed health insurance deduction on your 1040. It's also worth looking into setting up an HSA if you have a high-deductible plan, and potentially a QSEHRA if you might add employees in the future. The health insurance handling is super easy to mess up, and I've seen people lose thousands in deductions by doing it incorrectly.