Small business owners can save thousands by switching from an LLC to S-corp status. With $120,000 in profit, an LLC pays $18,000 in self-employment tax. An S-corp lets you pay yourself a $50,000 salary and take $70,000 as dividends, cutting that tax to $7,000 and saving $11,000 overall.
This strategy will save you thousands of dollars in taxes. As a business owner, choosing your business structure is crucial. At Insight, we recommend many small business owners elect an S corp, and here's why. Let's say I have an LLC and I make $120,000 in profit. All of that is subject to the self-employment tax of 15.3%. That means I'm paying $18,000 in taxes right off the bat, and that doesn't even include federal and state income taxes. But here's where the S corp can save you. If I elect S corp status, I can split my profits into a salary and dividends. Let's say I pay myself $50,000 in salary and take the remaining $70,000 as dividends. Now I only have to pay that 15.3% self-employment tax on the $50,000 salary. That's nearly $7,000 in self-employment tax. I just saved myself $11,000 in taxes. That is huge. So if you're looking to keep more of your hard-earned money, electing an S corp could be your next smart move. Yes! Follow us for more ways to save yourself even more money.
