Here’s the math behind the S-Corporation tax savings strategy:
If you make $100,000 in profit, you might pay yourself a $40,000 salary and take the remaining $60,000 as a distribution.
✅ That $40K is subject to payroll tax.
✅ The $60K is not — saving you 15% on that portion.
That’s a $9,000 savings compared to paying self-employment tax on the full $100K as a sole proprietor.
As your income grows, fine-tuning your reasonable salary percentage keeps you compliant and saving thousands every year.
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