WriterGen wrote:$100k salary....
As a sole proprietor, you pay $18k individual and $25k employer into the 401-k and owe $15,200 in FICA. (Obvious.)
As an S-Corp, you pay $18k individual. Because the $100k is your salary, you still have to pay $15,200 in FICA, split between employee and employer. Then you can add $25k FICA-free to the account as the S-Corp.
So it works out the same.
Your example is mistaken for several reasons. First, a sole proprietorship does not have a salary. It has a self-employment income. Second, a sole proprietorship can only contribute 20% of its self-employment income. Third, an S-Corp's profit sharing comes out of what is left over after the W2 salary is paid. etc... Rephrasing your $100K as net business profit for both sole proprietorship and S-Corp.Sole Proprietorship
Self Employment tax = $100,000 * 0.9235 * 0.153 = $14,130
Self-employment income = $100,000 - ($14,130/2) = $92,935
Profit sharing = $92,935 * 0.20 = $18,587
Maximum Solo 401k contribution $18,000 + $18587 = $36,587, SE Tax = $14,130S-Corp
Salary = $74,348
Employee FICA $74,348 * 0.765 = $5,688
Employer FICA $74,348 * 0.765 = $5,688
Profit Sharing = $74,348 * 0.25 = $18,587
Distribution $100,000 - $74,348 - $5,688 - $18,587 = $1,377
Maximum Solo 401k contribution* $18,000 + $18587 = $36,587, Employee FICA + Employer FICA = 11,376
* Technically you could increase the S-Corp W2 wages by a portion of the distribution, to allow an increase in the profit sharing. I left it the same as the sole proprietor to show the employer FICA savings on the employer profit sharing.