Main Street Business #554 How To Pay Yourself As An S-Corp In 2025
Dec 24, 2024
13:50
In this episode of the Main Street Business Podcast, Mark J. Kohler dives into the financial benefits of transitioning to an S corp. He highlights the importance of splitting income into payroll and draws, shares his foolproof 50/50 strategy, and explains why it’s a safe and effective approach. With practical advice on avoiding IRS scrutiny and optimizing your business structure, this episode is a must-listen for entrepreneurs and small business owners.
Here are some of the highlights:
- Mark introduces the topic of transitioning from an LLC to an S corp, emphasizing the importance of how one pays themselves.
- Mark splits life into operations and assets, explaining that operations could include a day job or a side hustle, while assets could include rental properties, brokerage accounts, and retirement accounts.
- Emphasizes the importance of treating the S corp as a real business, including having a bank account, tax ID number, corporate book, and annual board meetings.
- Explanation of the drawbacks of paying self-employment tax on an LLC, which is 15.3% on all profits.
- The importance of properly allocating draws on paper and issuing a W-2 report to achieve tax savings.
- How an LLC pays self-employment tax and state tax, while an S corp allows for splitting income into payroll and K-1 distributions to reduce tax liability.
- Implementing a payroll matrix to help business owners determine the appropriate payroll percentage based on their profit.
- The cost of converting to an S corp is justified by the significant tax savings achieved.
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