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Can S Corporation Status Reduce Self-Employment Taxes?

Yes. When it comes to self-employment taxes, S Corporations are better than Limited Liability Companies (LLC’s). It is generally agreed that LLC managing owners must pay self-employment taxes on their share of the LLC’s profits and that can amount to more than 15% of taxable income. But S Corporation shareholders only pay self-employment taxes on compensation they receive in the form of salaries and bonuses, not on their share of the corporation’s profits. This represents an obvious benefit.

And to take even further advantage of this benefit, some S Corporation owners pay themselves salaries that are as low as are reasonable (in the eyes of the IRS), leaving more profits (not subject to self-employment taxes) that are allocated to the shareholders.

Tax issues are very complex so it is always advisable to consult with an expert tax advisor before coming to any final conclusions and in determining what salaries the IRS will consider reasonable.

S Corporations can reduce self-employment taxes but LLC’s come out on top when it comes to pass-through treatment of profits and losses. See  “Is pass-through tax treatment the same for LLC’s & S Corporations?“ 

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DISCLAIMER: The information provided in this site is for general information purposes only and not legal advice.
MaxFilings is not a law firm, does not offer legal advice and is not a substitute for a law firm or an attorney.
Your use of this site is at your own risk and is subject to the terms and conditions in our  full disclaimer.

MaxFilingsMaxFilings is an online incorporation service that lets you incorporate or form an LLC in just 10 minutes, or start organizing your information until you are ready. There is no charge to store incorporation information in the secure MaxFilings system, and there is never any obligation to order.

MaxFilings incorporation fees are very affordable, and an extensive library for researching your choices is available at www.maxfilings.com/incorporation-knowledge-center.

Newly incorporated businesses also have access to online promotional services such as business cards, PR, web sites, and SEO services through partner company SEO Advantage (www.seoadvantage.com) .

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© 2008 MaxFilings.com All Rights Reserved. DISCLAIMER: MaxFilings, Inc. is a service company and does not provide legal or financial advice. The information provided on this site is for general information purposes only and not legal advice. MaxFilings is not a law firm, does not offer legal advice and is not a substitute for a law firm or an attorney. Your use of this site is at your own risk and is subject to the terms and conditions in ourÊfull disclaimer found at: www.maxfilings.com/disclaimer.html