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How the S-Corp savings work

• As a sole proprietor or single-member LLC, all of your net profit is hit with 15.3 percent self-employment tax (Social Security plus Medicare).
• Electing S-Corp status lets you split profit into a reasonable salary (which pays payroll tax) and distributions (which do not pay the 15.3 percent).
• The savings shown is the payroll tax you avoid on the distribution portion, less roughly 2,000 dollars a year for payroll filing and admin.
• The salary must be reasonable for your role and industry. Setting it too low invites an IRS audit, so this is where an Enrolled Agent adds real value.