Why Form an S-Corporation?
The S-Corporation structure is a good way for owners to reduce the amount of money they pay to Social Security and Medicaid. The owner’s salary is broken up into two parts: one part that is subject to self-employment tax, and one part (deemed an “S-Distribution”) that is only subject to individual tax – not Social Security or Medicaid tax. This allows for a reduction in the employment tax burden of 3% or more. (Note: Partnerships, which are taxed under “Subchapter K,” cannot choose the S-Corporation structure).
