How Much Does an S Corp Save You in Taxes in Bellevue, WA?

The Shocking Tax Savings of an S Corp in Bellevue

If you own a business in Bellevue, WA, you might be paying way more in taxes than necessary. The reason? Self-employment taxes are eating up your income. Many business owners don’t realize that switching to an S Corporation (S Corp) can legally slash their tax bill by thousands of dollars per year.

In this article, we’ll break down exactly how much you can save by forming an S Corp and the risks you need to watch out for.

Understanding Self-Employment Tax in Bellevue

As a sole proprietor or single-member LLC, the IRS requires you to pay 15.3% in self-employment tax on all business profits. This tax covers Social Security and Medicare contributions, and it applies to every dollar you earn.

For example, if your business profits are $150,000, your self-employment tax bill would be:

• $150,000 x 15.3% = $22,950 (in addition to income taxes)

Ouch. That’s a lot of money going straight to the IRS.

How an S Corp Lowers Your Tax Bill

An S Corp reduces self-employment taxes by splitting your income into two parts:

1. Your Salary: You must pay yourself a “reasonable salary” and pay payroll taxes on it.
2. Distributions: The rest of the profits are distributed to you without being subject to self-employment tax.

Here’s how it works in action:

• S Corp with $150,000 in profits
• You pay yourself a $75,000 salary
• You only pay self-employment taxes on the salary
• The remaining $75,000 is a distribution, which avoids the 15.3% self-employment tax

Real Savings for Bellevue Business Owners

Let’s compare:

• LLC or Sole Proprietor: Pays $22,950 in self-employment tax on $150K
• S Corp: Pays $11,475 in self-employment tax on a $75K salary
• S Corp Tax Savings: $11,475 per year

Over five years, that’s $57,375 in tax savings!

But Here’s the Catch…

S Corps aren’t magic. If you don’t set one up correctly, you could face serious IRS penalties. The IRS is on the lookout for business owners who try to take an unreasonably low salary to avoid taxes.

How to Avoid Costly Mistakes

To stay compliant:

1. Pay Yourself a Reasonable Salary – The IRS watches for salaries that are “too low.” Generally, it should be at least 50% of your business income.
2. File Payroll Taxes Correctly – Running payroll means filing quarterly tax reports.
3. Keep Clean Books – The IRS can audit your books to ensure compliance.

Don’t Let the IRS Take Your Money

If you don’t set up your S Corp properly, the IRS could reclassify all your distributions as salary and hit you with a massive tax bill plus penalties.

👉 Don’t risk an audit or overpay in taxes. Let CentsIQ handle your bookkeeping and payroll correctly—before the IRS comes knocking.