Electing to be an S-Corp

Reduce your federal self-employment tax by electing to be treated as an S-Corporation

Did you know if you’re self-employed or an employee, you have to pay Social Security and Medicare taxes to the government?

Self-Employed

Your payroll tax burden as a self-employed entrepreneur is 15.3% because you have to pay both portions of the tax.

Employee

Your payroll tax burden when you work for someone else, is 7.65% because you’re only responsible for part of these taxes. Your employer pays the other half.

How do you save money with an S-Corp election?

Self-Employed

When you are an LLC or sole proprietor, you have to pay self-employment tax on your entire taxable business income.

Employee

If you elect to be taxed as an S-Corp, you have to pay yourself a salary via a paycheck. Those wages are subject to self-employment tax, however the remaining earnings of your business are NOT subject to self-employment tax.

An example…

If your business has net income of $100,000 and you’re taxed as an LLC, you will owe about $15,000 in self-employment tax. However, if you elect to be taxed as an S-Corporation and take a $60,000 salary with the remaining $40,000 being a distribution to you or you keep it in the business, you pay only $9,180 in self-employment tax, saving you nearly $6,000 in self-employment taxes!

Things you should know…

There are additional costs of having an S-Corp including payroll fees as well as tax filing fees depending on your CPA.
There may be other factors to consider, including the QBI Deduction and Self-Employment Tax Deduction, as well as state and city corporation taxes. Before electing to file as an S-Corporation be sure to consult with a CPA
You must pay yourself a “reasonable salary”
Your annual federal S-Corporation tax return is due March 15th in addition to your personal tax return due on April 15th.

Want to know if an S-Corporation right for you?

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