Core Strategy: The S-Corp Tax Advantage
The goal of an S-Corp is to structure owner compensation to minimize the 15.3% self-employment tax (FICA). Click to see the mechanics.
Owner Compensation Flow:
1. Total S-Corp Profit Available: $100,000
2. **Reasonable Salary** (W-2 Income): -$60,000
Subject to 15.3% FICA Tax
3. Net Income for Distribution: $40,000
4. **Distribution** (K-1 Income): $40,000
Taxed as Ordinary Income, **FICA-Free**
Tax Savings on Distribution: ~15.3%
Texas Franchise Tax (Margins Tax)
S-Corps in Texas are subject to this annual state tax, which is based on your gross receipts less certain deductions (your 'margin').
Your Annual Compliance Cycle
Navigate your S-Corp's duties, from the crucial initial election to the annual state and federal reports.