Are you self-employed, running a small business? If your business is earning consistent profits and you’re concerned you are paying too much in taxes? You just might be. Don’t missing out on one of the best legal tax strategies available: the S-Corporation (S-Corp).
At Tax Rescue CPA, we specialize in helping clients use the S-Corp structure to significantly reduce their tax burden. Here’s a quick look at how an S-Corp can save you thousands of dollars every year.
1. Save on Self-Employment Tax
One of the biggest tax-saving advantages of an S-Corp is how it treats your income.
If you’re a sole proprietor or an LLC taxed as a sole proprietor, ALL your net income is subject to self-employment tax (currently 15.3%). But when you elect S-Corp status, you can split your business income between:
- A reasonable salary, which IS subject to payroll taxes, and
- Distributions, which are not.
Example:
If your business earns $120,000 and you pay yourself a salary of $60,000, only that salary is subject to payroll tax. The remaining $60,000 is taken as a distribution—saving you over $9,000 in self-employment taxes. BOOM
2. Deduct Your Health Insurance Premiums
As the owner of your S-Corp, you can deduct your health insurance premiums—but there’s a specific process:
- The business must pay the premiums or reimburse you.
- The cost is added to your W-2 income.
- You deduct the premium on your personal tax return.
This setup makes your premiums tax-deductible above the line, helping reduce your adjusted gross income (AGI), which usually results in additional tax savings.
3. Maximize Retirement Contributions
The S-Corp structure also makes it easier to save aggressively for retirement while reducing taxable income.
With a Solo 401(k):
- You can contribute up to $23,000 in employee deferrals for 2025 (or $30,500 if you’re 50+),
- Plus up to 25% of your salary as an employer contribution.
Altogether, you can potentially contribute up to $69,000 per year, all tax-deductible.
This not only reduces your current tax bill but also builds long-term wealth in a tax-advantaged account.
Is an S-Corp Right for You?
The S-Corp isn’t a one-size-fits-all solution. It comes with added responsibilities—like running payroll, filing a separate tax return, and staying on top of compliance.
But for most profitable businesses, the tax savings far outweigh the extra effort.
Need Help Setting Up an S-Corp?
At Tax Rescue CPA, we help business owners transition to an S-Corp the right way—from planning your payroll to handling IRS forms and ongoing compliance.
Ready to stop overpaying taxes?
Schedule a free consultation today and let’s talk about whether an S-Corp makes sense for you.
Who’s Saving YOU Taxes?
Disclaimer: This blog post is for educational purposes only and should not be considered legal or tax advice. Always consult with a licensed CPA or tax advisor about your individual situation.
