Filing as an S-Corp, can I list my owner's salary as a business expense?

Hi,

I know as a sole proprietor LLC that if I make a "net income" of $100K then this is the amount that I'm responsible in paying self-employment tax (15.3%) on; so my SE tax would be $15,300.

1. However, if I was a S-Corp and I paid myself a salary of $40K then this would drop my "net income" down to $60K; so I would only pay self-employment tax (15.3%) on this amount, which would come out to $9,180; right?

2. So does this mean that I would be able to list my $40K salary as a business expense because this is how I would lower my "net income" amount?

3. But since I'm an S-Corp, would I need to pay payroll taxes (7.65%) on my $40K [$40K - ($40K * 0.765) = $3,060] salary amount?

If so, then this would make my total tax amount be $12,240 [$9,180 + $3,060], so in the end a S-Corp would give me a tax benefit of $3,060 [$15,300 - $12,240]?

Thank you!

2511

Level 13

Jun 3, 2019 12:53:35 PM

Answers to your questions:

Salaries paid to an owner of an S corporation is treated as any other employee wage and is deductible. The SE tax is only paid on the wage to the owner, once again just like any other employee; paid 1/2 by the employer (S corp) and 1/2 by the employee.
As noted in the first response, wages paid to an owner of an S corp are deductible.
Yes wages paid to an owner are treated as wages paid to any other employee and are subject to the same payroll taxes.
Yes there is a benefit to incorporating and electing S corporation status. I did not run the numbers to determine what this benefit would be.

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Filing as an S-Corp, can I list my owner's salary as a business expense?