If you are a sole proprietor, this article is about saving on self employment taxes.

If you are a sole proprietorship , a partnership or an llc, you will be treated as a sole owner or partnership.

All self employed must pay self employment taxes on your income.  To avoid some of these taxes, you can form an S corporation and split salary with dividents because dividents are not subject to self employment tax.

The above must pay around 15.3% in self employment taxes. it is a combination of social security tax and medicare tax.

If you can form an S corporation, you may avoid this but you need to pay income tax and expenses for a payroll system.

You can save on payroll taxes because with an S corporation, you can split your income between wages and salary as divident salary and dividents are not taxable as self employment income.

The problem with being self employed  is that

• you have to pay the whole amount
  • as opposed to employees whose employer pays half and they pay the other half.

Spit $100,000 to 50k wages and 50k salary and you will only be liable for  $50,000 self employment tax.  That is whatever the rate is, it will be imposed on the 50k.