Mark Kohler explains how S corp status can save small-business owners thousands in taxes. If you earn over $50,000, you can split income into a W-2 salary and distributions, paying the 15.3% self-employment tax only on salary. A $100,000 profit owner drops their FICA bill from $15,000 to $6,000.
Chapters
I want to give you an important tax tip. So let's build another trifecta. We've got our trust down here. Let's go with the 1040. There's your tax return. If you're making more than $50,000 a year, you have got to seriously consider the S corporation. So on our operational side, that may mean you went from an LLC and you converted to an S corp. So you could have an LLC taxed as an S corp, or you just come right out of the gate and set an inc. Just in general, the reason why we love this is if you have a regular llc, you're paying self employment tax on every dollar you make in your small business. Some of you have already on your tax return. That's 15.3%. That is ugly. If you make 100 grand, you're spending $15,000 right out of the gate before you even get to state or federal tax. With an S Corporation, we can split that up, we can break it into two pieces. And this is again what every business owner does that's making this amount of money. And we take a W2 and pay our Self Employment Tax or FICA, and we pay that over here and we might pay that on $40,000 and then take the rest. Now you still make 100 grand, but it comes on two different pieces of paper. One is payrol, one is a dividend or this draw. Now you don't have to change your banking procedures. You don't have to wait for a paycheck. It's a process of just doing better journal entry and bookkeeping. It is not difficult, super simple. But now what we do, Instead of paying $15,000 on 100 grand, we only pay 15% on this $40,000. So we're paying 6 grand in FICA, not 15. So we just saved $9,000.
