The 3 Single Member LLC Tax Mistakes That Trigger IRS Audits in 2026

If you skip these single member LLC tax steps, you're leaving $4,800 on the table and here's how to fix it. Here's the problem. 73% of single member LLCs [music] overpay in year one. File as an S corp after $60,000 in profit to save $3,200 in self-employment tax annually.

Deduct your home office at $5 per square foot up to 300 square feet for $1,500 back. A single member LLC is taxed [music] as a sole proprietorship by default in 2026. That means you pay 15. 3% self-employment tax [music] on every dollar of profit.

Most owners don't realize they can elect S corp status [music] and only pay that tax on salary, not distributions. The difference [music] on $80,000 profit is $4,800 per year. Here's the real scenario. You form a Wyoming LLC through [music] Bastian Formations for $249.

Start earning $70,000 and forget to make the S corp election by March 15th. You just paid $3,400 extra in self-employment tax that you'll never get back. Most people fail here. They think the LLC itself [music] changes their tax rate.

It doesn't. The LLC is a legal wrapper, not a tax [music] entity. By default, the IRS treats your single member LLC as a disregarded entity. You report [music] profit on schedule C of your personal 1040.

You pay income [music] tax plus 15. 3% self-employment tax on the full profit. No deductions [music] for health insurance premiums unless you elect S corp status. Step one is filing form 2553 with the IRS to elect S corp taxation.

You must file by March 15th of the tax year you want [music] it to apply or within 75 days of forming your LLC. Bastian Formations can help you set up the LLC in one to three days in Wyoming, giving you time to file the election before the deadline. The form itself is free. Once approved, you pay yourself a reasonable salary and take the rest [music] as distributions, which aren't subject to that 15.

3% tax. Step two is separating your salary from distributions correctly. [music] The IRS requires a reasonable salary for your role. If you're a consultant earning $80,000, pay yourself $50,000 salary [music] and take $30,000 as distributions.

You save $4,590 in self-employment tax on that $30,000. This is important. If you skip the salary entirely, the IRS can reclassify all distributions as wages [music] and hit you with penalties plus back taxes. Document your salary calculation in [music] your records.

Here's the problem. Most single member [music] LLC owners pay estimated taxes four times a year but never adjust after electing S corp status. You're still paying based on the old sole proprietorship rate. Recalculate using your new salary only self-employment tax.

Before the S corp [music] election, you owed $12,240 in self-employment tax on $80,000 profit. After, you owed $7,650 on a $50,000 salary. That's $4,590 [music] less. Update your quarterly payments immediately or you'll overpay.

Now for the advanced move, deduct your health insurance premiums [music] and retirement contributions above the line. As an S corp shareholder owning more than 2%, you can't deduct health insurance as a business expense, but you can deduct it on form 1040 line 17 as self-employed health insurance. Max this out. Then open a solo 401k and contribute up to $69,000 in [music] 2026 as both employer and employee.

That's $69,000 [music] off your taxable income. The exact wording to use when talking [music] to your CPA, I want to maximize my above the line deductions using S corp salary and solo 401k employer contributions for tax year 2026. Bastian Formations offers registered agent service for $99 [music] per year to keep your LLC compliant while you focus on these tax strategies. I want to maximize [music] my above the line deductions using S corp salary and solo 401k employer contributions for tax year 2026.

Elect S corp by March 15th to save $4,800 yearly. Pay yourself reasonable salary, take rest as distributions. [music] Deduct health insurance and max solo 401k contributions. [music] If this saved you money, smash like, hit subscribe, and visit Bastian Formations for your LLC setup.

[music] Visit https://bastianformations. com.