Self-Employment Tax Savings

Self-Employment Tax Savings for an S-Corporation.

Here is an example of how you can save income taxes after the business entity has been created.

Robert is an owner of a courier service business which generates $100,000 in profits.  After the comprehensive review it was decided to create the business formation as an S-corporation for Robert.  After the creation of the S-Corporation for Robert the tax savings is phenomenal.

With continual tax planning we suggested that Robert will take a reasonable salary of $40,00 per year.  The remaining $60,000 of the Robert’s business profits are passed through the S-Corporation and reported on his personal income tax return.

On the $40,00 Salary Robert and his corporation only pay a total of $6,120 in employment tax which is 15.3% times $40,000 equals $6,120.  The remaining amount of $60,000 from Robert’s profits he will have to pay income taxes on that amount.

If a decision was made not to convert his sole proprietor operation to an s-corporation he would have to pay $15,300 in self-employment taxes on the total $100,000 profits.

Robert’s decision saves him $9,180 for the current year.

The positive point is that this savings continues year after year for the life of his business!