top of page

The Benefits of an S-Corporation: How to Set Up an S-Corp for Optimal Savings

Setting up an S-Corporation (S-Corp) can offer significant financial benefits for business owners. If you're contemplating taking your business to the next level, an S-Corp might just be your golden ticket. Let’s dive into how it works and the potential advantages it can bring to your wallet and lifestyle.


Two Income Streams: Wages (W2) and K1 Distributions

With an S-Corp, you have the flexibility to pay yourself in two ways:

  1. Wages (W2): This is your regular salary, much like any other employee.

  2. K1 Distributions: These are your share of the profits from the business.

    The Benefits of an S-Corporation: How to Set Up an S-Corp for Optimal Savings


Tax Implications on Wages and K1 Distributions

When you pay yourself wages, you are subject to Social Security and Medicare taxes, also known as FICA taxes. Here’s the breakdown:

  • Social Security Taxes: 12.4% total (shared between employer and employee)

  • Medicare Taxes: 2.9% total (shared between employer and employee)

  • Total FICA Taxes: 15.3%


The Savings on K1 Income

Here’s where the magic happens: K1 distributions are not subject to FICA taxes. This means you save the combined 15.3% Social Security and Medicare taxes on all of the K1 income.


The Financial Advantage

Per IRS guidelines, a reasonable wage is approximately $5000/month. Let’s take a look at how much you can save:

  • On the $5000 monthly wages, you'll pay the 15.3% FICA taxes.

  • However, on your K1 income, you don't pay any FICA taxes.


The savings from not paying 15.3% FICA taxes on the K1 income can add up significantly, allowing you to allocate these savings towards other things, like a fantastic vacation. And because Social Security has a regressive formula, this won’t greatly impact your benefits as you might think.


Conclusion

Setting up an S-Corp can be a strategic move for those looking to maximize their income by minimizing tax burdens. By structuring your income in the form of wages and K1 distributions, you can take advantage of the tax benefits and keep more of your hard-earned money.


The Benefits of an S-Corporation: How to Set Up an S-Corp for Optimal Savings

Subscribe to our newsletter

Comentários

Avaliado com 0 de 5 estrelas.
Ainda sem avaliações

Adicione uma avaliação
OPEN HOURS

Mon - Fri: 6am - 6pm

​​Saturday: By Appointment

​Sunday: By Appointment

CONTACT US

Phone: 480-734-9786
(text messages preferred)

MAILING

8390 E. Via De Ventura F110

Scottsdale, Arizona 85258

What my clients say

QuickBooks Live Experience Advanced Pro Advisor
QuickBooks Live Experienced Payroll Certified
QBO Partner #backingyou
Xero is a cloud-based accounting software platform designed for small and medium-sized businesses.
Jobber is a field service application
Synder is Ecommerce transaction syncing program
Shoeboxed: Receipt scanning app or receipt scanning service—your choice.

Intuit, QuickBooks, and QuickBooks ProAdvisor are registered trademarks of Intuit Inc. Used with permission under the QuickBooks ProAdvisor Agreement.

Your information is protected by
256-bit SSL encryption
  • Twitter
  • LinkedIn

I would highly recommend Priscilla for any accounting needs. Her company Bookkeeping Business Online is an outstanding accounting firm who would be an asset to any business.

Karen

I appreciate it Priscilla, it's a pleasure to work with you.

Murat

Just thought I would let you know that since all of my books are now done in QuickBooks, the amount of time it takes me to do my taxes has decreased from two weeks to just over one day.  Thank you for getting me started.

Dale

RESUME

Passpack is a team password management platform
Reduce overselling and stock errors with Finale's platform that continuously syncs across sales channels and integrations.

parse.ly      Privacy Policy

chart beat  Privacy Policy

mix panel   Privacy Policy

© 2023 by bookkeepingbusinessonline.com  

NAICS CODE 541219-03

SIC CODE 8721 

bottom of page