As an S-corporation owner – how do I pay myself??
One of the biggest advantages of running your business as an S-corporation is minimizing the 15.3% Self-Employment Tax. To do that, you typically pay yourself a reasonable salary based on the work you perform for your company. The amount you pay yourself via salary tends to be much less than your total company profits.
So how do you get the profits of your business to you while reducing your self-employment tax? The answer: shareholder distributions.
Example: Company profits of $140,000 per year and you pay yourself a reasonable salary of $60,000. You can take the full $140,000 out of the business as follows:
- The first would be your paycheck based on the salary amount. From that, you would have payroll taxes and income taxes withheld.
- The second would be shareholder distributions. This method is simply cutting a check or making a transfer from your corporate bank account into your personal bank account
The above would result in a self-employment tax savings of over $10,500
S-corporations are pass-through entities – this means you pay tax on the net income of the business whether you pull the money out or not. Furthermore, taking owner distributions does not create any additional tax as long as you have the basis to do so.
Please give us a call if you have any questions on how to utilize an S-Corp to minimize your 15.3% Self-Employment Tax!