The most important part of leveraging tax savings in an S-Corp is payroll, but one more component can maximize your savings.
Benefits! You can have many of the same benefits as an employee of an S-Corp that an employee of a larger corporation would have.
Health/Dental/Vision Insurance
You can use corporate-level health plans with your S-Corporation which can be fully deductible on your business taxes as expenses These costs will still be subject to federal tax through your W-2, but you still realize some savings and additional features by running the health plan through the business. This can also cover your family.
Retirement Plans
A SEP IRA can have matching contributions up to 25% of your wages and a 401(k) has extended employer. The best part it can be possible to carve out almost $40k in deductible expenses. Also, you’ll be moving that chunk of cash into your retirement savings and out of your taxable income.
Of course, there are tax benefits immediately for changing from a sole proprietorship or LLC into an S-Corp, you don’t see all of the tax savings until you start using these additional benefit payments. The savings explode once you tap into health and retirement benefits. This is the reason we recommend the S-Corp especially once you start making greater than $160,000 net income in a year.