MARK KOHLERMain Street Professionals, Main Street Professionals, Main Street Professionals, Main Street Professionals, Main Street Professionals, LLC · Owner at Main Street Professionals, LLC

How to Reduce One of the Biggest Taxes You Pay

31 Oct 2025 · 1 min

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1:16

In this concise presentation, Mark Kohler explains that self‑employment tax is a major expense for small‑business owners and that forming an S Corporation is the primary method wealthy entrepreneurs use to lower that tax. He walks through a concrete example of a landscaper earning $100,000 in revenue with $25,000 in expenses, resulting in $75,000 net profit. Under a sole‑proprietorship or basic LLC the owner would owe 15.3% self‑employment tax on the full $75,000 (over $10,000). By electing S‑Corp status, the owner can allocate a reasonable salary ($25,000) subject to payroll taxes and take the remaining $50,000 as distributions, which are not subject to self‑employment tax. This split saves roughly $7,500 (15.3% of $50,000), illustrating how the tax savings scale with higher earnings.

Chapters

This is one of the most onerous, big terrible taxes that small business owners pay. Self employment tax. And the S Corporation is the number one method for wealthy entrepreneurs to slash self employment tax. Now for example, here's how it works. Assume you're a landscaper. You bring in $100,000 of revenue, spend 25,000 on expenses and net $75,000. Well as a basic LLC or sole proprietorship, you're going to pay 15.3% of employment tax or self employment tax on the entire 75,000. That's over $10,000 before you even pay state or federal taxes. Now the S Corporation allows you to split that income between reasonable salary subject to payroll taxes and distributions or draws not subject to self employment tax. So with that same 75,000 of profit, we may take 25,000 in salary and $50,000 in distributions. The result is you save thousands by cutting down the FICO or self employment tax exposure on the entire amount and isol to the salary amount. So in this example, we now just saved 15.3% on $50,000, which is around $7,500. And that's not chump change. That's big savings. The more money you make, the more you save.