Plug in your company’s profit and see how taking part of it as a salary (and the rest as a distribution) could reduce your tax bill.
Spoiler alert: The savings might surprise you.
An S Corporation isn’t a new type of legal entity, it’s just a different way to have your existing company (likely an LLC or PLLC) taxed. But that small change can have a big impact on how much tax you pay as an owner.
With an S Corp election, you still own your company as usual. But instead of taking 100% of your profits as self-employment income, and paying self-employment tax on all of it, you split that income. You pay yourself a reasonable salary as an owner, and take the rest as a distribution.
Here’s the kicker: Distributions aren’t subject to self-employment tax. That’s where the savings come in.
It’s just a different tax classification for your existing LLC or PLLC
Which can lead to significant tax savings
Let’s say your company nets $300,000 in profit. If you’re taxed as a regular LLC, you could owe around $30,000 in self-employment tax. If you elect S Corp status, and pay yourself a salary of $90,000 while taking the other $210,000 as a distribution, your self-employment tax might drop to around $14,000.
You pay around
in self-employment tax
You pay around
in self-employment tax
That’s $16,000+ that could stay in your business, or be reinvested into new equipment, staff bonuses, or your retirement plan.
Enter your estimated yearly income and see a side-by-side comparison of taxes as a sole proprietor vs. an S-Corp, including your potential savings.
Ready to make the switch or have questions? Our team can guide you through setting up your S-Corp and maximizing your savings.
