Are You Maximizing an S-Corp?

First, you need to undestand that your net profits will be subject to self employment taxes, and then they will pass-through to your personal tax return, where you'll pay state and federal income tax.  S-Corps only help mitigate the self employment taxes, not income taxes.

Self employed business owners pay medicare and social security on their net profits.  Together, they are often referred as "self employment tax" or "SE Tax".

The largest portion of the self employment tax is Social Security Taxes.  You'll owe 12.4% social security taxes on your income up to the social security limit. The limit increases each year, but was at $147,000 in 2022.  That means that all income, up to the limit of $147,000, is first subject to a 12.4% social security tax.  

This tax funds your social security benefits in retirement, so it's important to note how reducing it will affect retirement income.

All income is subject to medicare tax, and at higher income levels, the tax will actually increase.

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