You can choose to take money from your S Corporation in 2 ways…as a wage and as a draw (i.e. return on equity). You pay 14% more tax when you take the money as a wage because Social Security and Medicare taxes must be paid on a wage, while money taken as a draw is free from this 14% tax. The IRS requires you to take a “reasonable wage” from your S Corporation if your S Corporation is sufficiently profitable. You should aim to set your S Corporation wage on the low end of “reasonable” in order to minimize this 14% tax.
Accounting and Consulting