Could Your LLC Save Thousands In Taxes?

Are you leaving money on the table? Discover how an LLC’s S-Corp election can slash your taxes!

Electing S-Corporation status for your LLC can lead to significant tax advantages, especially when considering a $100,000 profit. In a standard LLC setup, the entire profit is subject to self-employment tax and income tax. However, with an S-Corp election, you can split the profit into a reasonable salary and distributions. The salary portion is subject to self-employment tax, while distributions are not. By doing so, you could potentially reduce your self-employment tax liability and overall tax burden.

Tax Advantage Example: $100,000 Profit

Imagine your LLC makes $100,000 in profit. Under standard LLC taxation, all $100,000 is subject to self-employment tax (15.3% for the tax year 2024) and income tax. That equates to $15,300 of self-employment tax plus income tax. With an S-Corp election, you split the profit into a reasonable salary and distributions. For instance, with a $50,000 salary, you’d pay self-employment tax on that portion only ($7,650), saving on the rest. By electing S-Corp status, you could significantly reduce your tax burden while staying compliant.

It’s essential to consult with a tax professional to determine the optimal salary level and ensure compliance with IRS regulations. This strategy can effectively maximize your tax efficiency and contribute to the financial health of your business.

-HC