LLC vs S Corp - my accountant gave me the wrong advice?

Met with this old school tax guy in Austin last year. Told me to stick with LLC for my consulting business. Said S Corp was overkill. Now I'm making 120k and getting killed on self-employment tax. Lost about 8 grand because of his advice. My new CPA says I should have switched at 80k. So who do you trust? The old timer with 30 years experience or the young gun who stays current? What's your experience been with picking business structure?

3 comments

3 Comments

hugo_robinson251mo ago

Your old accountant was probably giving advice that worked in 1995 when the S Corp rules were different and tax rates were lower. I know three guys in Austin who got the same talk and all regretted it by year two. The real issue nobody mentions is that CPAs who don't push S Corps often just don't want to deal with the payroll paperwork themselves. It creates more work for them and they pass that cost onto you. My guy charges an extra $200 a quarter to run my payroll and file the 941s, but I save triple that in SE tax every year.

lucasschmidt1mo ago

Yikes, guess I picked the wrong year to finally make a profit instead of just hauling freight and losing money.

the_max1mo ago

Whoa, hold on a second there. I see where @hugo_robinson25 is coming from, but I gotta push back a little on that 1995 point. S Corp rules actually got a lot tougher after the 2008 recession with the reasonable compensation requirements, so the old 90s advice was more about tax avoidance than anything. The payroll paperwork thing is partially true, but most CPAs who avoid S Corps are just scared of the IRS rules around what you pay yourself as a salary versus distributions. But honestly, for someone making 120k in consulting like the OP, the old timer probably should have mentioned it at 80k like your new CPA said. I'd trust the young gun on this one since the landscape keeps changing and sticking with an LLC at your income level is just leaving money on the table.