How an S-Corp May Reduce Your Self-Employment Tax* Bill

Example for $125,000 in business profit with a $65,000 reasonable S-Corp salary.

Sole Proprietor / Single-Member LLC
Business Profit
$125,000
↓
Tax Treatment
100% = Self-Employment Income
Every dollar of profit is subject to Self-Employment tax
↓
Total Self-Employment Tax Paid
$19,125
15.3% on $125,000
S-Corporation
Business Profit
$125,000
↓
Tax Treatment
Salary $65K
Distribution $60K
Salary — subject to SE tax Distribution — not subject to SE tax
↓
Total Self-Employment Tax Paid
$9,945
15.3% on $65,000 salary only
Annual Tax Savings with S-Corp Election
$9,180 saved per year

* Self-Employment Tax refers to Social Security and Medicare taxes (FICA) paid by self-employed individuals.

For educational purposes only. Please consult your tax professional.

Note: There may be additional costs for S-Corporations associated with payroll processing and tax return preparation.

Worth noting

Taking a salary as an S-Corp owner doesn't require writing yourself a separate check. Your net pay can be recorded on the books as a reduction to your draws — so you keep pulling money from the business as you normally would, and the bookkeeping quietly accounts for the IRS salary requirement in the background.

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