Slash Self-Employment Taxes with an S Corp Election
Many small business owners complain about high self-employment (SE) taxes, which run over 15% on all net business income.
At Bright Hill Advisors, we help clients make an S corporation election to drastically reduce SE tax exposure.
Key points:
- SE tax applies to sole proprietors, single-member LLCs, partnerships – over 15% of all net income
- An S corp election pushes net income to the S corp return and replaces much of the SE tax with lower payroll taxes
- Owners pay themselves a “reasonable salary” which is subject to payroll tax, while the remaining income is distributed as dividends and avoids SE tax
For example, on $100K net income:
- LLC: $15,300 SE tax + $25,000 income tax = $40,300 total tax (40.3% effective rate)
- S Corp: $20,000 salary at 15.3% payroll tax + $30,000 income tax on $80K distribution = $35,300 total tax (35.3% effective rate)
The savings add up exponentially as S corp income grows. Other benefits like QBI deduction, health insurance deductions, and state tax savings magnify the impact.
BHA helps businesses set up payroll, calculate reasonable salary, and project S corp tax savings.
This election can save tens of thousands without changing how you operate.
Reach out if you want to learn more!