How an S Corporation Can Help Texas Small Business Owners Save on Taxes

Understanding the Self-Employment Tax Burden

Many Texas entrepreneurs, freelancers, and contractors are surprised at how quickly self-employment taxes add up. At 15.3%, these taxes apply to your entire profit if you operate as a sole proprietor or default LLC. For a business netting $100,000 in profit, that’s over $15,000 going directly to Medicare and Social Security taxes.

Why Austin and Hill Country Business Owners Consider S Corps

Electing S Corporation status changes the way your income is taxed. Instead of paying self-employment tax on your entire profit, you split your income into two parts: a reasonable salary (subject to payroll taxes) and a distribution (not subject to self-employment tax). This strategy is particularly beneficial for consultants, contractors, and small business owners in areas like Austin, Cedar Park, Leander, and Lago Vista.

A Simple Example of S Corp Tax Savings

Here’s a quick scenario:

• Business profit: $100,000

• Salary: $60,000 (payroll taxes apply here)

• Distribution: $40,000 (no self-employment tax)

In this example, an owner could save thousands of dollars annually while still staying compliant with IRS rules on “reasonable compensation.”

Additional Benefits Beyond Savings

Choosing an S Corp can also make it easier to manage payroll, retirement contributions, and even long-term planning for your business. Texas business owners also benefit from no state income tax, which keeps compliance simpler than in many other states.

Ready to Explore Whether an S Corp is Right for You?

If you’re running a profitable business in Austin, Lago Vista, Cedar Park, or Leander, the S Corporation strategy might be the key to reducing your tax burden. Gray & Associates CPA has guided hundreds of Texas businesses through this process, helping them save money year after year while staying compliant. Reach out today to see how much you could save.