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

[olimits7]

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!

[Rick19744]

Answers to your questions:

1. 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.
2. As noted in the first response, wages paid to an owner of an S corp are deductible.
3. Yes wages paid to an owner are treated as wages paid to any other employee and are subject to the same payroll taxes.
4. 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.