What is an S-corp and how do they save you money on taxes?

Watch this if you have an LLC and you don't know how to pay yourself. So there are many different ways to pay yourself when you have an LLC, and it all depends on how the LLC is taxed. If you're the only owner of the LLC, then by default you're taxed as a disregarded entity, and this applies unless you elected otherwise. So when you're a disregarded entity, all the profits that the LLC makes are basically directed straight over to your personal income. So in that situation, you basically just transfer the money from the business bank account over to the personal bank account and label it as an owner's draw. Now, if your LLC has multiple owners, then by default it is taxed as a partnership unless you elected to have it taxed another way. Now, assuming that the LLC is taxed as a partnership, then the process is similar. You basically transfer the money from the business bank account over to the owner's bank accounts and label it as an owner's draw. And lastly, if your LLC is taxed as an S corporation, which is something you would have elected in the initial stages of starting your LLC, then you would issue yourself a salary along with distributions. Choosing to have your LLC taxed as an S corporation is something you have to do within the first 2.5 months of registering the business, and it basically is a way of saving you a significant amount of money on self-employment taxes. Basically, what you do when you have an S corporation tax election for your LLC is you pay yourself a reasonable salary, and that is subject to self-employment taxes. But anything that your business makes in excess of the reasonable salary is issued to yourself as a distribution, which is not subject to self-employment taxes. An S corporation tax election is usually not something you should do unless your business is making a decent amount of money. Generally accountants say around $80,000 per year. So overall, the way to pay yourself from an LLC depends on how the LLC is taxed. Thanks and follow me for more business-related tips.