My situation: I am the sole employee of an S-Corp. In 2016, based on a reliable contract, I can expect a gross of $80K. Typically, I have $2-3K in expenses. I'm under 50. Because of our overall financial situation, my goal is to put as much as possible into the 401k. But the calculators I've found online are too simplistic.

I know I need to take into account payroll taxes (FICA, etc). And I don't know for sure but assume the $18K employee contribution means my wages are effectively reduced by that amount when calculating the 25% employer contribution. As near as I can come to an answer is this:

I gross 80K, need to account for 3K in expenses and also leave a 5K cushion in my business account, leaving 72K. I can subtract 18K as an employee contribution, leaving 54K. I also need to allow $12K for payroll taxes (16.75% of 72K). So 42K is left.

But here's where I have too little information. I obviously can't pay that 42K into my personal bank account because then there'd be no money left to actually make the employer contribution. So am I left paying myself 80% of 42K (33.6K) and only being able to employer contribute 8.4K?

I should also mention that of whatever amount ends up in my personal account, we don't care if a significant chunk has to go to income tax. The main goal here is to put as much as possible into the 401K.

  • Your 5K cushion is irrelevant. It is still part of your income, whether you chose to contribute it back to the corp or not. Employee contribution comes from your salary, so again - irrelevant. It is part of the overall salary expense. How you distribute the money is, you guessed it, irrelevant. Do with the 42K whatever you want, its your income. Bottom line - get a CPA/EA to explain to you how S-Corps work.
    – littleadv
    Dec 14 '15 at 16:57
  • You really need more help than this forum can reasonably provide. There are a couple of questions in here, and then there are also some assumptions that look wrong. I agree with @litteadv: You should get professional advice specific to your situation on this one.
    – user32479
    Dec 14 '15 at 21:24
  • Thanks. I'll talk to an accountant. I was under the naïve impression that this would be somewhat generic. :-)
    – Stonetip
    Dec 15 '15 at 1:39

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