James, a consultant, earns \$200,000 net from his sole proprietorship. He pays 15.3% self-employment tax (\~\$30,600).
*Strategy:*
He elects S-Corp status. He pays himself a “reasonable salary” of \$80,000 and takes the remaining \$120,000 as distributions (not subject to payroll tax).
*Tax Savings:*
He saves *\~\$18,000 per year* in self-employment taxes.
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