(Courtesy of Medicare Done) Many business owners opt to file as an S Corporation (S Corp) to reduce self-employment taxes. While this strategy can help lower your tax bill, it may also influence your Social Security benefits when you retire.

What Is an S Corporation

An S Corporation is a business structure that allows profits to pass through directly to the owner’s personal tax return, avoiding double taxation. This means that instead of the company being taxed separately, the business income is reported on your personal tax return, and you only pay self-employment taxes (Social Security and Medicare tax) on your salary, not the total profits of the business. For example, if your business earns $200,000 and you pay yourself a $100,000 salary, you will only pay self-employment taxes on that $100,000, while the remaining $100,000 is distributed to you as profit without additional self-employment tax.

Impact on Social Security

Social Security benefits are determined by your earnings and the self-employment taxes you contribute. If you reduce your salary in order to lower your taxes, you will also reduce your contributions to Social Security. This could result in a lower monthly benefit when you retire, as your benefit is based on your average income over your career.

Choosing an S Corp can help lower your taxes, and is the right choice for many. We can help you develop a strategy that balances tax savings without compromising future retirement income. Schedule a free Social Security consultation with Yeshaya Jeremias RSSA, call (248) 919-8193 or email [email protected] to ensure you maximize your benefits.

This is a bimonthly series featured in the Health and Business editions, focusing on Social Security planning.