New EIN or change address after start of LLC

[wvu doc]

I am an independent contractor and file taxes as a sole proprietor. I recently setup a solo 401k and rolled over my sep-ira into the solo 401k. For 2022, my accountant recommended I setup an LLC and file taxes as an S-corp. My question is a few months ago I got an EIN from IRS. Looking at IRS publications, I either send letter to IRS requesting a name change (basically adding LLC to my name) or setup a new EIN. Has anyone had to deal with this before? Any references or advice? My accountant thinks I would write letter to IRS to request name change.

Thanks!

[spiritrider]

First question, what specific facts and circumstances justify filing taxes as an S-Corp. Unfortunately, on WCI we see far too many ICs with counter-productive S-Corps recommended by their CPA. That is not to say they are wrong, but due diligence.

[jfoxcpacfp]

I would hazard a guess that you wouldn’t be allowed another EIN. Before you go down that road, however, I’d listen to @cordmcnally‘s advice. Too many accountants focus on the Medicare savings only and not the related costs of setting up an S-corp. Recommend a cost-benefit analysis using FMV wages for you and considering all costs such as CPA, bookkeeping, payroll, potential reduction of 199A benefits, legal…I think that’s most of it…versus the amount of Medicare savings for you.

Don’t let your CPA convince you that you need to elect S status because…

1. You can get more deductions
2. You can get more retirement and other employee benefits
3. You need the liability protection

All are false. You can get the same with a sole proprietorship and an S-corp or LLC will give you more liability protection only if you have other employees. Your liability protection comes from your professional liability insurance.

All that really matters otherwise is the costs v benefits. In general, in most states, you need to earn (net) ~$400k for an S-corp to make sense. In CA, it’s closer to $600k. In TN, somewhere in-between (we don’t have as many TN 1099 clients as we do in CA, so haven’t set a general ROT yet).

Not exactly what you asked, but hope it helps give you some perspective. It is SO much easier not to do it than to UNdo it. (Of course, assuming you don’t need it, and I will readily acknowledge that you may very well benefit from it.)

[wvu doc]

I would hazard a guess that you wouldn’t be allowed another EIN. Before you go down that road, however, I’d listen to @cordmcnally‘s advice. Too many accountants focus on the Medicare savings only and not the related costs of setting up an S-corp. Recommend a cost-benefit analysis using FMV wages for you and considering all costs such as CPA, bookkeeping, payroll, potential reduction of 199A benefits, legal…I think that’s most of it…versus the amount of Medicare savings for you.

Don’t let your CPA convince you that you need to elect S status because…

1. You can get more deductions
2. You can get more retirement and other employee benefits
3. You need the liability protection

All are false. You can get the same with a sole proprietorship and an S-corp or LLC will give you more liability protection only if you have other employees. Your liability protection comes from your professional liability insurance.

All that really matters otherwise is the costs v benefits. In general, in most states, you need to earn (net) ~$400k for an S-corp to make sense. In CA, it’s closer to $600k. In TN, somewhere in-between (we don’t have as many TN 1099 clients as we do in CA, so haven’t set a general ROT yet).

Not exactly what you asked, but hope it helps give you some perspective. It is SO much easier not to do it than to UNdo it. (Of course, assuming you don’t need it, and I will readily acknowledge that you may very well benefit from it.)

Thank you for your reply and your help. My accountant has crunched the numbers. I was enjoying the 199A benefits, but I have unfortunately phased out of that with my higher income this year. Last year I discussed with my accountant possibly forming an LLC and filing as an s-corp as the other practitioners in my group all do the same. She did the comparison and the 199A deduction was better. This year I had a drastic increase in pay (will be a little more than $600k this year in 1099 income..before taxes, etc). She analyzed the numbers and said now S-corp filing makes sense. I will also have the added benefit of hiring my wife for a small salary and funding a retirement account for her. This will help us increase the amount we can put away in retirement accounts.

[wvu doc]

First question, what specific facts and circumstances justify filing taxes as an S-Corp. Unfortunately, on WCI we see far too many ICs with counter-productive S-Corps recommended by their CPA. That is not to say they are wrong, but due diligence.

I doubled my income from last year. I expect my income to be similar to the current year or higher going into the future. I was using the 199A deduction but I phased out for the first time this year. I want hire my wife and fund a retirement account for her to increase our total amount going into retirement accounts a year.

[spiritrider]

The S-Corp may or may not be beneficial due to increased income, but is unnecessary to hire a spouse. Self-employed individuals can just as easily hire W-2 employees or in most cases it would be easier to justify as a qualified joint venture (QJV)

[jfoxcpacfp]

Thank you for your reply and your help. My accountant has crunched the numbers. I was enjoying the 199A benefits, but I have unfortunately phased out of that with my higher income this year. Last year I discussed with my accountant possibly forming an LLC and filing as an s-corp as the other practitioners in my group all do the same. She did the comparison and the 199A deduction was better. This year I had a drastic increase in pay (will be a little more than $600k this year in 1099 income..before taxes, etc). She analyzed the numbers and said now S-corp filing makes sense. I will also have the added benefit of hiring my wife for a small salary and funding a retirement account for her. This will help us increase the amount we can put away in retirement accounts.

It is generally counter-productive to hire a non working spouse. (And, fwiw, you can do this without an S-corp.) The FICA tax hit on wages is a significant frontload fee on a deduction that will later be fully taxable, including all growth and income. I almost always recommend using these funds to grow a taxable account using low-cost index funds.