WHEN BUSINESS INCOME GROWS, STRUCTURE MATTERS

If you’re a sole proprietor, LLC owner, or receive a K-1… read this 👇

One of the most common (and expensive) tax mistakes I see is letting all business income be treated as self-employment income.

When that happens:

• You pay income tax, plus

• You pay self-employment tax (15.3%) on every dollar of profit

That adds up fast once you cross six figures.

Why an S corporation is worth considering

An S corp doesn’t change how much you earn — it changes how that income is taxed.

Instead of all profit being hit with self-employment tax, income is split into:

• Owner wages (subject to payroll taxes), and

• Distributions (not subject to self-employment or payroll tax)

You still pay income tax on both.But only the salary portion gets hit with payroll taxes.

Real-world example

Let’s say you net $140,000 from your business or K-1 income.

Without an S corp

• Entire $140K is self-employment income

• Self-employment tax ≈ $19,800

With an S corp

• Reasonable salary: $80,000

• Distributions: $60,000

• Payroll taxes ≈ $12,200

👉 Tax savings: ~$7,600/year

Even after accounting for payroll and tax return costs, many business owners still save

$5,000+ every year.

Who this applies to

This isn’t just for “big companies.”

You should at least explore an S corp if you are:

• A sole proprietor

• An LLC owner

• A partner receiving K-1 income

• Consistently earning $100K+ from your business

The fine print (important)

An S corp:

• Requires payroll

• Requires proper bookkeeping

• Requires paying yourself a reasonable salary

• Only works if it’s done correctly and defensibly

This is tax planning, not a loophole.

Bottom line

If you’re successful and still paying self-employment tax on every dollar, there’s a good chance your business structure is costing you more than it should.

📌 Structure matters.

📌 Strategy matters.

📌 And once income grows, doing nothing is often the most expensive choice.

If you want to know whether an S corp actually makes sense for you, that’s a numbers conversation — not a guess. Book a Tax Strategy call with me. The fee for the call will be credited to your entity filing fee should an S corp be appropriate for you.