S-Corp distribution tax rate

[Cool Breeze]

Those are solid points Tim, thank you and thanks to the others for responding. I'm just trying to get my head around the advantages and disadvantages, and how much of a hassle paperwork might be. I'm just unclear on one final thing: If a single member LLC (S Corp) paid its employee the reasonable salary, is the remainder (distribution or dividend?) given to the same person as something at the business tax rate (I have been told 20% akin to long term cap gains) thereby making it worthwhile for both lowering the self employment threshold (possibly but not necessarily for docs) and for the overall individual tax burden for feds? Or is the distribution just added to your personal income and your rate or bracket may go up accordingly, and all the S corp was good for was potentially lowering SE taxes?

Thanks.

[Gamma Knives]

Or is the distribution just added to your personal income and your rate or bracket may go up accordingly, and all the S corp was good for was potentially lowering SE taxes?

Thanks.

Essentially this. S Corp is passthrough. The corporation does not pay tax. Any profit is passed to the owner and taxed as income (but not subject to payroll tax).

Edit: a C corp distributions will be taxed as dividend. However, the corporation will also have to pay 21% tax on profits. So the company's earnings are first taxed at 21% and then you pay tax on the dividend (similar to long term capital gain).

[Cool Breeze]

Thanks. That renders the best decision yet again to be a sole proprietor as a single member, as you all have suggested - less paperwork, no worry about the "right salary" etc.

Thanks to all.