Fractional work tax setup: LLC, S-corp, or sole prop?
A non-CPA but practical breakdown of how most US-based fractional operators structure their entity and what trips them up.
Talk to a CPA before deciding. But here's the shape of what most US fractional operators end up doing, so you know what questions to ask.
The common path
Year 1, under ~$80k profit: single-member LLC, taxed as sole prop. Cheap, simple.
Year 1+, over ~$80k profit: same LLC, S-corp election. Pay yourself a 'reasonable salary,' take rest as distributions, save on self-employment tax.
Multi-state work or hiring: you'll want a CPA and possibly a bookkeeper. Don't DIY past this point.
What trips people up
Forgetting quarterly estimated taxes — penalty stings the first year.
Mixing personal and business expenses on one card.
Not setting aside 25–30% of every invoice for taxes from day one.
Charging clients sales tax in states that require it (a few states tax services).
About fractional llc s-corp
Do I need a separate business bank account?+
Yes, on day one. Mixing funds breaks LLC liability protection and makes bookkeeping miserable.