As an owner of an S-Corporation, you are required to receive reasonable compensation (wages) in return for services provided. Through the compensation, we cover tax withholding for Federal and State so that the amount of tax will cover the taxes on their individual return for the compensation they received and the profit from the corporation.
For example, the owner received $50,000 compensation but also $60,000 profit from the company. We would estimate the taxes on $110,000. In the event the owner only wants to cover the $50,000 he or she would owe additional taxes on the $60,000 when filing the individual tax return and would be required to make estimated tax payments individually.
We will manually calculate the tax withholdings needed for you.
The total income tax will be the same regardless of your compensation. The income tax does not change whether it’s from the W-2 or profit from the business. The only difference is Self Employment / Payroll Taxes. See the S-Corp comparison image below. As you’ll notice, there is no mention of income taxes, only Social Security and Medicare.