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S-Corp


The tax benefit of operating as a S-Corp come into play when business profits exceed a reasonable salary for the owner.


Business owners are required to pay ~15% in Social Security (SS) and Medicare taxes. These taxes are collected differently for the sole proprietor compared to a S-Corp owner.


As a sole proprietor SS and Medicare taxes are paid on all business profits in the form of the self-employment tax.


As a S-Corp owner SS and Medicare taxes are only paid on the owner's wages. Distributions in excess of wages are not subject to these taxes.


All distributions from to a S-Corp owner must be in the form of wages until a reasonable salary has been paid.


Distributions in excess of the owners reasonable salary are not subject to SS and Medicare taxes, providing the saving over operating as a sole proprietor. A general example...


EXAMPLE

Sole Proprietor

S-Corp Owner

Business Profits

$100,000

$100,000

Wages

$0

$70,000

Profit over Wages

$100,000

$30,000

SS & Medicare Taxes

$15,300

$10,710

There are additional expenses to operating as an S-Corp including payroll costs and preparation of a business tax return.

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