I provide services through a platform that allows me to do data entry and customer service for other companies. I was required to be an LLC with S corp election in order to provide services.
I'm the only member of my LLC. Do I need to pay myself as a W2 employee or as a 1099 contractor? I do plan to have contractors under my LLC in the future. I'm in the state of Arizona if that helps.
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with an S-Corp election you will file an 1120S. since in effect it's a corporation that you own and work for, the IRS would classify you as an employee. Employees generally don't work for free, so the IRS would want to see you take a reasonable salary. if you have health insurance there are ways to handle so you get an "above-the-line" (reduces adjusted gross income). handle it wrong and at best it would be treated as a medical expense reported on schedule A which might not produce any tax benefit.
this link will give you guidance on reasonable compensation and how to handle health insurance
i would also suggest using a tax pro to prepare the first year return. there are a lot of federal and state tax and other laws that affect your business. TT does a good job of going thru the tax issues but many people are surprised when they are faced with fines for failure to comply with non-tax laws.
As a shareholder in the S corp, you are an employee of the S corp, not a contractor. Because you are an employee of the S corp, the S corp must issue to you a Form W-2 to report your compensation from the S corp.
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