A conversation with a retired accountant made me rethink my LLC structure

I was pouring drinks for a regular last week, a guy named Frank who used to run a small accounting firm in Cleveland. He asked what I did for taxes and I told him I had a single-member LLC for some freelance consulting work. He said I was probably paying too much in self-employment tax and should talk to a CPA about electing S-corp status if my net profit was over $40k a year. That hit me because I just cleared $48k last year and never even considered that option. I called my tax guy this morning and he confirmed Frank was right, it could save me around $3,000 a year. Has anyone else switched from an LLC to an S-corp and seen real savings?

2 comments

2 Comments

emery_lopez28d ago

My uncle tried the S-corp switch for his landscaping business and saved a bunch, but then he spent half the savings on a new accounting software he didn't need because his CPA said he had to track distributions differently. I think he ended up breaking even and went back to a regular LLC the next year. The IRS forms make my head spin just looking at them.

miles7228d ago

Wait, does he have a CPA that would actually let him revert back to a sole prop without a huge hassle? I thought once you made that S-corp election you were kinda stuck in the system for a few years unless the IRS approved your revocation. Sounds like his story might be missing some details on the exit plan.