Is S-Election Necessary for High W2 Salary

[Nghi Le]

I've always heard that I should use a corporation to reduce self-employment taxes while doing fix-n-flips. However, I've heard that you only need to pay high SE taxes up to $130k. If my W2 Salary is $130k+, then my employer already pays most of the SE taxes, right? Should I take the S-Election for my LLC and have it taxed as an S-Corp, or let it remain as an LLC? Unless there's other advantages that an S-Corp would have over an LLC for my situation.

[Dave Toelkes]

@Nghi Le

I disagree with @Ashish Acharya   The 15.3% self-emmployment income tax has two components:  12.4% for the FICA component, and, 2.9% for the Medicare component.  All earned income from all sources (W-2, self-employment, etc.) is subject to the 2.9% Medicare tax, but, only the first $127,200 of earned income is subject to the 12.4% FICA tax.  If your W-2 employer is already withholding FICA taxes on the first $127,200 of your 2017 W-2 income, then you have already met the maximum FICA contribution for the tax year and will not have to pay the FICA componnent of your self-employment income regardless of how much self-employment income you earn.  If your total earned income puts you into a high-earner category, then there will be an additional 0.9% Medicare tax surcharge on the amount of income that exceeds the high-earner threshold. 

Your attorney will have to advise you on what legal protections a corporation structure might offer over and above the LLC. It appears that there is no self-imployment income tax reduction to be gained by having your LLC treated as an S-corp for tax purposes, or by forming an S-corp.