Zahid owns a bookkeeping service. In keeping with the industry standard, Zahid decides that a reasonable salary for an accounting manager is $35,000 and pays himself accordingly. Zahid's total earnings for the year are $60,000; $35,000 paid in salary and the remaining $25,000 paid as a distribution from the S corp. Zahid's total employment tax is $5,355 (15.3% of $35,000).
If Zahid were the owner of an LLC, he would have to pay employment tax on the entire $60,000, equaling $9,180. But as an S corporation, he realizes savings of $3,825 in employment tax.
ahem! ahem!
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