Using your scenario of $160,000 profit before you pay yourself or take any distributions: If you pay yourself $10,000 and take a distribution of $100,000 you will still have K-1 income of $150,000. Distributions are not deductible like a salary reported on a W-2. They are a distribution of earnings that either have been or will be taxed as ordinary income.
The way you can benefit from having an S-Corp, as opposed to being a sole proprietor filing on Schedule C, is by avoiding Self-Employment tax. When you pay yourself a salary, you must deduct 7.65% of your salary to pay Social Security and Medicare taxes. The business also pays 7.65% for a total of 15.3%. When you are self-employed, you pay 15.3% self-employment tax, which is the employer and the employee portions of Social Security and Medicare. If you are an S-Corp, you are required to pay yourself a "reasonable" salary. You and your business will pay 15.3% payroll taxes on your salary. You can then take distributions that are not salary and are not subject to Social Security and Medicare tax.
Of course, being able to pay yourself and avoid paying the 15.3% in payroll taxes creates an incentive to pay yourself a very low salary, and take large distributions. If you do, and it's ever challenged by the IRS, they can reclassify some or all of your distributions as salary. See the following IRS information on paying yourself a reasonable salary:
Wage Compensation for S Corporation Officers
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