An S corporation could cut your self-employment tax

If your business is organized as a sole proprietorship or a wholly owned limited liability company, you’re subject to both income tax and self-employment (SE) tax. There may be a way to cut your tax bill by operating as an S corporation. SE tax is imposed on 92.35% of SE income at a 12.4% rate for Social Security up to $142,800 for 2021 and at a 2.9% rate for Medicare. An extra 0.9% Medicare tax is imposed on income exceeding $250,000 for married filers and $200,000 for singles. If you conduct business as an S corp, you’re subject to income tax, but not SE tax, on your share of business income. But the S corp must pay you a reasonable salary. Contact us if you want to discuss these issues.