I'm in the exact same boat as you! Just switched to S-corp about 6 weeks ago and was totally overwhelmed by all the payroll options. After reading through everyone's suggestions here, I'm leaning toward either Patriot Payroll (love that $21/month price point) or maybe trying the DIY approach with a good spreadsheet system. One thing I learned from my accountant is that you really want to get your payroll set up ASAP since the IRS expects consistent payments throughout the year. Waiting too long and then trying to catch up with back-dated payroll can look suspicious and cause headaches. Has anyone dealt with setting up the actual business bank account requirements for payroll? My bank is asking about payroll tax accounts and I'm not sure if I need a separate account or if my regular business checking will work for the tax deposits.

As someone who just went through this transition last year, I'd strongly recommend getting your payroll set up within the next week or two. The IRS really doesn't like seeing irregular payment patterns in your first S-corp year - it can trigger unwanted attention. For budget-friendly options, I'd echo the Patriot Payroll recommendation at $21/month. I actually started with them and found their interface really straightforward for beginners. The customer service was patient with all my newbie questions too. One thing I wish someone had told me earlier: whatever salary you decide on, try to stick with it consistently throughout the year rather than adjusting it quarterly based on business performance. The IRS prefers predictable W-2 wages. You can always take additional distributions if you have a good quarter. Also, don't forget to register for an EFTPS account with the IRS for your tax deposits - most payroll services will handle this automatically, but it's good to understand the process. Good luck with your first year as an S-corp!

Don't forget about quarterly estimated tax payments if you start making decent money from your books! I didn't do this my first year and got hit with penalties. If you expect to owe more than $1,000 in taxes from your publishing income, you need to make quarterly payments. The IRS Form 1040-ES helps calculate these. The deadlines are April 15, June 15, September 15, and January 15 of the following year. Also, remember you'll be paying self-employment tax (15.3%) on top of your regular income tax rate. This catches a lot of new authors by surprise!

Great advice throughout this thread! As someone who's been self-publishing for a few years, I'd add one more important point: consider opening a Solo 401(k) for your publishing business income. Since you're already earning W-2 income from your day job, you can still contribute to a Solo 401(k) based on your self-employment earnings from book sales. This allows you to shelter a significant portion of your publishing profits from taxes - you can contribute up to 25% of your net self-employment income (or 20% if you calculate it precisely). For 2025, the contribution limit is $70,000 total, though most new authors won't hit that. The Solo 401(k) is especially powerful because contributions reduce your taxable income dollar-for-dollar. So if you make $10,000 profit from book sales, you could potentially contribute $2,000 to the Solo 401(k), reducing your taxable self-employment income to $8,000. You still pay self-employment tax on the full amount, but you save on income tax. Just make sure your publishing activity qualifies as a legitimate business (sounds like yours does) and that you're showing a profit motive. The IRS wants to see that you're trying to make money, not just pursuing a hobby.

Just to add to this conversation - I've been a 1099 contractor for schools for 7 years now. Make sure you're tracking your quarters of coverage for Social Security! You need 40 quarters (10 years) of coverage to qualify for retirement benefits. For 2025, you need to earn $1,820 in a quarter and pay self-employment tax on it to get credit for that quarter. If you earn $7,280 or more for the year and pay your self-employment taxes, you'll get credit for all four quarters even if you only worked part of the year.

Your tax preparer was definitely trying to upsell you unnecessary services! As everyone has confirmed, when you pay self-employment tax on your 1099-NEC income, you ARE contributing to Social Security - exactly 12.4% of your net earnings goes toward Social Security and 2.9% toward Medicare. I went through this same confusion a few years ago when I started contracting. The key thing to understand is that you're paying both the employee AND employer portions of Social Security taxes (hence the 15.3% total), but you get to deduct half of that self-employment tax on your return, which helps offset some of the burden. You don't need an EIN or payroll setup just to contribute to Social Security. That would only make sense if you were considering an S-Corp election to potentially save on self-employment taxes, but at your income level, the added complexity and costs probably aren't worth it. Keep filing your Schedule C and Schedule SE as you have been - you're doing everything correctly! Your 1099 income is building your Social Security credits just like W-2 income would.

For the student loan aspect - which I'm guessing is why y'all are filing separately - make sure you really run the numbers! Sometimes the tax benefits of filing jointly outweigh the student loan payment savings. My wife and I were in a similar boat (about 220k vs 85k incomes) and we found that we saved more overall by filing jointly and just paying the higher loan payment. Totally depends on how much debt, interest rates, and how close to forgiveness you are though.

Great question! As someone who's navigated this exact scenario, here are the key factors to consider: **Tax Credits:** With your income levels, you'll want to calculate who can still qualify for the Child Tax Credit. The phase-out begins at $200k for single/MFS filers, so your spouse at $98k would likely get the full $2,000 per child credit, while you might be partially or fully phased out. **Student Loan Impact:** This is huge! Whoever claims the kids will have a larger household size for IDR calculations, which typically means lower monthly payments. Given that your spouse is the one with student loans, having them claim the children could significantly reduce their monthly obligation. **Head of Household:** Since you lived together, neither of you can file as Head of Household, so you're both stuck with MFS rates. **My recommendation:** Have your spouse claim both children. They'll likely get better tax benefits due to income limits, AND it will help with the student loan payments by increasing their household size for IDR purposes. Definitely run the numbers both ways to be sure, but in most cases with your income split, the lower earner claiming dependents works out better overall when you factor in both tax savings and loan payment reductions.

Great discussion everyone! I want to emphasize something that might not be immediately obvious to newcomers - the IRS actually designed Form 1040 this way (with the "a" and "b" line pairs) for audit purposes and to ensure proper tax calculation. The "a" lines capture your total income received, which the IRS can cross-reference with the 1099s and other tax documents they receive from financial institutions. The "b" lines show what you're actually claiming as taxable, which is what gets used in calculating your tax liability. This dual reporting system helps catch discrepancies. For example, if you report $10,000 total interest on line 2a but the IRS has 1099-INT forms totaling $12,000, that's going to trigger questions. Similarly, if your taxable amount on line 2b seems inconsistent with typical tax-exempt vs taxable interest ratios, they might want documentation. One practical tip: when you're preparing your return, always start by adding up all your 1099 forms first to get your "a" line totals, then work backwards to determine the taxable portions for the "b" lines. Don't try to estimate or use round numbers - use the exact figures from your tax documents. This approach will save you headaches if the IRS ever has questions about your return.

This thread has been incredibly helpful! As someone who's been struggling with these same Form 1040 line pairs, I really appreciate everyone sharing their experiences and explanations. I had the exact same confusion as the original poster - I was thinking that if I had $10,000 in interest income with half being tax-exempt, I'd put $5,000 on line 2a and $5,000 on line 2b. Now I understand that line 2a gets the FULL $10,000 (total received) and line 2b gets only the taxable portion ($5,000 in this example). What really clicked for me was @Diego's explanation about the audit trail - it makes so much sense that the IRS wants to see both the total amount you received (which they can verify against 1099 forms) AND the amount you're claiming as taxable. This dual reporting system is actually pretty clever from a verification standpoint. I'm definitely going to follow the advice about gathering all my 1099 forms first to get accurate totals for the "a" lines, then calculating the taxable portions for the "b" lines. No more guessing with percentages or round numbers - I'll use the exact figures from my tax documents. Thanks everyone for turning what seemed like an impossible puzzle into something I can actually understand and complete correctly!