Has anyone here actually converted from an S Corp to a C Corp? I'm worried about the practical aspects. Like do I need to get a new EIN? Will my bank accounts need to change? How complicated is the actual filing process?

Great discussion here! I'm actually in the middle of making this exact decision for my consulting business. From what I'm reading, it sounds like C Corp is definitely the way to go for avoiding pass-through income, but I'm curious about one practical aspect - how do you all handle the "reasonable salary" requirement? The IRS wants you to pay yourself a reasonable W-2 salary, but I'm not sure how to benchmark what's "reasonable" for my industry. Do you just look at comparable roles at other companies? And if I set my salary too low initially, can I adjust it mid-year without raising red flags? I want to optimize the split between salary and retained earnings, but obviously don't want to invite an audit. Also, for those who went the C Corp route - did you notice any issues with business banking or getting loans? Some people have told me that C Corps can be more complicated for small business financing.

3 Watch out - I thought I was being clever by taking a small salary from my S-Corp ($40K) when I was actually making about $250K in profits. Got audited and ended up having to reclassify a bunch of my distributions as wages, pay back payroll taxes plus penalties. Cost me about $32K in total. My new CPA says there's no hard rule but they typically want to see at least 50-60% of profits as reasonable compensation depending on your industry. Also differs based on how labor vs. capital intensive your business is.

The fundamental difference is corporate governance and tax structure. Public company CEOs who take $1 salaries have their compensation packages approved by independent boards of directors and compensation committees, which provides legitimacy in the eyes of regulators. Their stock options and RSUs are still subject to ordinary income tax rates when exercised/vested, plus the company pays payroll taxes on the fair market value. Small business owners face different scrutiny because S-Corp distributions avoid self-employment taxes (15.3% savings), while CEO stock compensation doesn't provide the same tax avoidance opportunity. The IRS specifically targets owner-operators who might abuse this structure. The "reasonable compensation" test for small businesses considers: your role and responsibilities, hours worked, business profits attributable to your personal services vs. capital, and what you'd pay a non-owner to do your job. There's no magic percentage - it's truly case-by-case based on these factors. Bottom line: Big company CEOs aren't actually avoiding taxes with their structure, they're just deferring timing. Small business owners using minimal salaries are potentially avoiding payroll taxes entirely, which is why the IRS watches it more closely.

Looking at your situation, the $95 deduction increase after 3 months is very likely due to your benefits kicking in after your probationary period! Most companies start health insurance, dental, vision, and retirement plan contributions at the 90-day mark. Here's what those acronyms typically mean: - **Fed MWH** = Federal Medicare Withholding (though this seems unusual - Medicare is usually shown as FICA-Med) - **FICA-SS** = Social Security tax (6.2% of your gross pay) - **FICA-Med** = Medicare tax (1.45% of your gross pay) - **SIT** = State Income Tax The jump from $70 to $95 ($25 increase) could easily be explained by health insurance premiums starting. A typical employer health plan might cost $25-50+ per paycheck depending on your coverage level. I'd suggest logging into your employee portal or asking HR for a breakdown of your current benefit elections. You probably signed up for health insurance during orientation but it didn't start deducting until now. This is totally normal and nothing to worry about - just means your benefits are finally active!

I had the exact same confusion when I started my current job! Those acronyms can be really overwhelming at first. Based on what you're describing, the $95 increase after 3 months is almost definitely your benefits kicking in post-probation period. Here's a quick breakdown of those common acronyms: - **Fed MWH** = Federal Mandatory Withholding (your federal income tax) - **FICA-SS** = Social Security tax (6.2% of gross pay) - **FICA-Med** = Medicare tax (1.45% of gross pay) - **SIT** = State Income Tax The jump from ~$70 to $95 is totally normal when health insurance starts. My company's basic health plan was about $28 per paycheck, and if you added dental/vision that could easily account for your $25 increase. Don't feel awkward about asking HR - they deal with these questions constantly and would much rather explain it clearly than have you worry about incorrect deductions. Most companies also have detailed benefit statements available in their employee portals that break everything down without the confusing acronyms. You're definitely not alone in finding this stuff confusing - paycheck deductions are like learning a whole new language!

Has your wife checked if you're accidentally claiming some deduction or credit that's a major audit trigger? For years I kept getting letters because I was mixing up the American Opportunity Credit and Lifetime Learning Credit for my kids' education expenses.

I've been through this exact same frustrating cycle! Got audited three years in a row before figuring out what was happening. In my case, it turned out to be a combination of two issues: my employer kept making small errors on my W-2 (like reporting $52,347 instead of $52,374) and I was inconsistently rounding numbers on my return. The IRS computer systems are incredibly sensitive to mismatches. Even if your actual tax liability is correct, any discrepancy between what you report and what third parties (employers, banks, etc.) report to the IRS can trigger verification requests. Here's what finally helped me: I started pulling my wage and income transcripts from the IRS website BEFORE filing my return to see exactly what information they already had on file. Then I made sure my return matched those numbers precisely - no rounding, no "close enough" estimates. Also worth noting - if you've moved recently or changed jobs, make sure all your addresses are consistent across all forms. The IRS uses address matching as one way to verify identity, and any inconsistencies can flag your return for additional review. Since making these changes, I haven't had a single audit or verification request in over four years. Sometimes it really is just about being more precise with the details rather than anything being fundamentally wrong with your return.

I worked through a $55k tax debt over 4 years. What really helped me was increasing my withholding at work so I'd get bigger refunds each year that would apply to my debt. Also made sure to claim every legitimate deduction and credit. Made a huge difference in how quickly the balance went down. Good luck!!

I went through something very similar a few years back - owed about $72k to the IRS and it felt completely overwhelming. The fact that you're already on a payment plan and making consistent payments is huge, so don't underestimate that progress you've made. One thing that really helped me was requesting a Collection Information Statement review. Even though I was on a payment plan, my financial situation had changed since I first set it up, and I was able to get my monthly payment reduced from $2,100 to $1,400 based on updated income and necessary expenses. The IRS is more flexible than people think if you can document legitimate financial hardship. Also, definitely look into penalty abatement if you haven't already. I got first-time penalty abatement for some years and reasonable cause abatement for others, which knocked about $8,000 off my total balance. Even if you've had issues in the past, there might be specific circumstances that qualify for relief. Keep making those payments and stay in communication with the IRS - you're on the right track even though it feels like a mountain to climb right now.