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At $50K+ profit, your business structure starts costing (or saving) you thousands in taxes. Time to optimize.
$50K+
S-Corp Threshold
Net profit to consider
$5-15K/yr
SE Tax Savings
S-Corp vs. sole prop
21%
C-Corp Tax Rate
Flat corporate rate
Business Structure at $150K Profit
| Feature | Tax Impact | Best For |
|---|---|---|
| Sole Prop / LLC | SE tax on ALL profit (15.3%) | Simple, under $50K profit |
| S-Corp Election | SE tax only on salary portion | $50K-$500K profit |
| C-Corp | 21% flat, but double-taxed on dividends | Reinvesting heavily, venture-backed |
| S-Corp + Solo 401k | SE tax savings + massive retirement deduction | Maximum tax efficiency |
Pay Yourself Reasonable Salary
$60K-$80K salary on $150K profit. SE tax (15.3%) only applies to salary.
Take Rest as Distribution
$70K-$90K as owner distribution. No SE tax — saves $10K-$14K annually.
Max Solo 401(k)
$23.5K employee + 25% of salary employer match. $40K+ tax-deferred.
Run Payroll
Required for S-Corp. Use Gusto ($40/mo) or similar. File quarterly payroll taxes.
Reasonable Salary Rule
Stay as LLC/Sole Prop
S-Corp payroll costs ($2K-$4K/yr) don't justify savings yet.
Elect S-Corp Status
File Form 2553. Save $5K-$10K/yr in SE tax.
Optimize Salary + Retirement
Max Solo 401(k), consider defined benefit plan for $100K+ deductions.
Consider C-Corp for Portions
21% corporate rate may beat 37% personal rate on reinvested profits.
S-Corp Is Not a New Entity
Key Takeaways