I file jointly with my wife for a total income of 350K. I plan to do consulting on the side next year and have an LLC established being taxed as an S Corp. I plan to take a reasonable salary from my S Corp as an employee and take additional distributions throughout the year as the sole owner as needed. I understand the salary will be taxed via payroll and distributions are not taxed (on the company level) but will be reported on the K-1 when I file my personal taxes. At what tax rate is that then hit with when I do my personal taxes? I ask because I wonder if due to my high household income the additional passthrough income from the K-1, via the company’s distributions to me, may be taxed at a higher tax rate vs the self-employment tax rate if I was not tax structured as an S Corp and just a normal LLC. Or am I completely misunderstanding it?
Example: $100K in net profit from LLC. I take a salary of $70K and $30K remains, which can be distributed to me as the sole member. Due to my new household income of $420K ($350K joint income plus the additional $70K I take as salary from the corporation) when the $30K is reported on K-1, is that hit by my personal income tax rate, which can be higher than the 15.3% self-employment tax rate?
