S-Corp owners can split their income between a W-2 salary and shareholder distributions. Only the salary portion is subject to self-employment tax (15.3%). The IRS requires the salary to be "reasonable compensation" for your role, typically $40,000 to $80,000 for most small business owners. The distribution portion avoids payroll taxes, which is the primary tax advantage of the S-Corp election.
Salary vs Distribution Calculator for Accounting Firm
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Salary vs Distribution Calculator
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LLC (Pass-Through)
SE Tax: $35,618
Income Tax: $51,216
Total: $86,834
S-Corp
FICA on Salary: $14,247
Income Tax: $51,216
Total: $65,463
Potential S-Corp Savings: $21,371/year
Current structure: S-Corp | Total comp: $232,800