How to Pay Yourself Properly as an S-Corporation Owner and Save Thousands in Taxes
In this episode of the Become Sensible podcast, we’re revealing one of the most overlooked tax-saving strategies for small business owners: how to pay yourself properly as an S-Corporation owner. If you’re earning $50K or more annually and running an LLC or thinking of converting to an S-Corp, this episode could literally put thousands back into your pocket.
Why You Need to Listen
Are you:
- Running a business but unsure how to structure your salary?
- Worried about overpaying self-employment taxes?
- Curious if an S-Corp can actually save you money?
This episode breaks down how to pay yourself the smart way and legally reduce your tax bill.
What We’ll Cover
In this episode, you’ll learn:
- The difference between salary (W-2 income) and distributions (K-1 income)
- How to split your business profits for maximum tax savings
- The IRS guidelines for reasonable compensation
- Costs of setting up and maintaining an S-Corp
Here’s What You’ll Discover:
- Why Structure Matters: Without an S-Corp, your entire business profit is subject to 15.3% self-employment tax. However, as an S-Corp owner, you can split your income into salary and distributions, significantly reducing your tax burden.
For example, if your business earns $100,000 in profit, you could allocate $50,000 as salary (subject to employment tax) and $50,000 as distributions (not subject to employment tax). This structure results in a $7,500 tax savings—completely legal and IRS-compliant. - How to Set a Reasonable Salary: Determining the right salary depends on your business profit. For profits around $50K, aim for 50-60% salary. If you’re making $100K, a 40% salary is typical, while higher profits may justify 20% salary. The key is ensuring reasonable compensation based on industry standards and your role, keeping you compliant without overpaying in taxes.
- Costs vs. Savings: While there are some compliance costs, the savings far outweigh them. Expect around $250 for S-Corp setup, $1,000 for annual tax returns, and $500 for payroll services. Even after these expenses, you’ll still enjoy a $6,000 net gain—equivalent to a $500 monthly raise just for structuring your business correctly.
Take Control of Your Compensation
If you’re earning $50K+ per year, consider switching to an S-Corp. Get an accountant who knows the strategy, set up your bookkeeping system, and plan your salary-distribution split.
Don’t leave thousands on the table. This strategy has worked for countless business owners—and it can work for you, too.
Don’t Miss Out!
Learn how to pay yourself smartly, save on taxes, and keep more of your hard-earned money. Tune in now and grab your S-Corp Salary Planning Guide to get started today!
Happy listening, and here’s to your business success!
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