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This combined rate can accumulate quickly, especially for high earners, leading many to seek legal ways to mitigate this tax burden.
How an S Corporation Can Help Reduce Self-Employment Taxes
The core advantage of electing to be taxed as an S corporation is the ability to split income into two parts:
Salary (Wages): Subject to self-employment taxes (Social Security and Medicare).
Distributions: Not subject to these taxes.
By paying yourself a reasonable salary and taking the remaining profits as distributions, you can reduce the amount of income subject to self-employment taxes, which could lead to substantial savings.