Self-Employment Tax as an LLC
Under a standard LLC tax arrangement where the income “flows through” to your 1040 tax return and business schedule C, you would pay self-employment tax on all of that $90,000. At approximately 15 percent, the tax on that money would be $13,500. You would still pay standard federal and state taxes on any earnings.
Payroll Tax as an S Corporation
If you choose to be taxed as an S Corporation, you could say that your salary is $50,000 and take the other $40,000 out of your business as a distribution. You would pay standard payroll tax on that $50,000 for a total of around $7,500. You would not pay any payroll or self-employment tax on the $40,000 distribution, saving you around $6,000. You would still pay standard federal and state taxes on both your salary and your distribution.