What this is

A Schedule C business (sole proprietor or single‑member LLC) pays self‑employment tax on 100% of profit.
An S‑Corporation allows income to be split between:

• Reasonable salary (subject to payroll taxes)
• Distributions (not subject to self‑employment tax)

Why it saves taxes

Self‑employment tax is approximately 15.3%.
By limiting wages and taking excess income as distributions, this tax is reduced.

Example impact

• Schedule C profit: $144,000
• Self‑employment tax exposure: ~$20,000
• With S‑Corp structure: savings of $8,000–$12,000 per year

Key requirements

• File Form 2553
• Pay owners a reasonable W‑2 salary
• Maintain payroll and corporate records