Here’s how to break down your income in an S-Corporation.
Say your business makes $150,000 in sales and $50,000 in expenses, leaving $100,000 in profit.
If you ran that through a regular LLC or sole proprietorship, you’d pay about $15,000 in self-employment tax.
Instead, with an S-Corp, you split your income:
• Part goes to salary (subject to payroll tax).
• The rest flows through as a K-1 distribution (not subject to self-employment tax).
The key question: How much should your salary be?
It depends on your profit and what’s considered a reasonable percentage for your industry. That balance determines your tax savings.
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