re: S-Corp Election

quote:

---

Say my "profit" is 110K. I then pay myself 100K and keep 10K in the business. I currently take that 100K and transfer money to my personal account once a month. I then have to pay regular Fed taxes and the 15% FICA on the whole amount (110K minus personal exemtpions, etc). If I do an S-Corp election, then I can "pay" myself 50K (with W2) and take a distribution of 50K. Then I only have to pay the FICA part on the first 50K and regular fed on the remaining 60K. So that $9000 savings is well worth the extra couple hundred bucks to my accountant. Am I missing something?

---

This is my understanding. I actually did that this past year where I was in a ind. contractor situation and making a decent amount of money. I am back in an employer/employee situation and getting W2'd and am in the process of shutting it down. My accountant told me that you should be able to justify your salary. IE you can't pay yourself 20k as a lawyer, while taking a 80k distrubtion. I think what is reasonable is fairly subjective, but the above example obviously isnt.