How the Wealthy Use S Corporations to Save Thousands in Taxes

Most small business owners are losing thousands every year to taxes they don’t need to pay. The S corporation is how the wealthy fix that. When it’s set up right, it turns your income into one of the most powerful tools for saving money, building wealth, and protecting what you’ve built.

Here’s how the wealthy use it to win the tax game.
1. Slash your self-employment tax
2. Build real wealth with a Solo 401(k)
3. Create a board to unlock bigger deductions and protection

Let’s break it down.

What an S Corporation Really Is

First, let’s clear something up. An S corporation isn’t a special type of company. It’s a tax election. You can have an LLC taxed as an S corporation, or a corporation taxed that way. Either way, it changes how your business income is treated for tax purposes.

Inside your Trifecta, your S corporation lives on the left side, the operational side where your active income is earned. On the right side are your assets, like rentals and investments, usually held in LLCs. And at the base is your revocable living trust, which ties everything together and flows down to your personal tax return. This structure is how you create balance between income, protection, and legacy.

1: Slash Self-Employment Tax

Here’s where the S corporation earns its reputation. It’s the number one way small business owners cut self-employment tax and keep more profit.

Say you make $100,000 and spend $25,000 on expenses. As a regular LLC, you’ll pay self-employment tax (that’s FICA) on the full $75,000 of profit. That’s over $10,000 gone before you even get to income tax. With an S corporation, you split that income between salary and profit distributions. You pay FICA only on your salary, not on the distributions.

If you pay yourself a $40,000 salary and take $60,000 in distributions, you just saved more than $9,000 in taxes. That’s real money back in your pocket. And you’re less likely to get audited using this structure compared to filing as a sole proprietor. The sweet spot for switching to an S corp usually starts around $40,000 to $50,000 in annual profit.

Here’s the key: you can’t take a salary from a plain LLC or sole proprietorship, so you can’t trigger those savings without an S corp election.

2: Build Wealth with a Solo 401(k)

Once you’ve got the S corporation in place and you’re saving on taxes, it’s time to put those savings to work. The wealthy don’t spend their extra cash. They invest it. And the Solo 401(k) is their go-to move.

With an S corp, you wear two hats: employee and employer. As the employee, you can defer up to $30,000 of your salary into a Solo 401(k). Then, as the employer, your business can contribute even more on top of that, bringing your total contributions up to around $70,000 a year, depending on your income.

That money grows tax-deferred or tax-free if you go Roth. And with a self-directed Solo 401(k), you’re not limited to Wall Street. You can invest in real estate, private companies, crypto, metals—whatever you know best. Too many small business owners skip this step and end up “business rich and cash poor.” Don’t make that mistake. Use your S corp to build wealth outside your business too.

3: Create a Board and Unlock Bigger Deductions

Here’s where most business owners leave money on the table. The most successful entrepreneurs build a team, not a one-man show. They use a board of directors or advisors to bring in new perspectives, formalize decisions, and justify powerful deductions.

An S corporation gives you the framework to do this the right way. You can add family members, friends, and trusted advisors to your board, hold regular meetings, and legitimately deduct the costs tied to those meetings. That’s travel, meals, technology, even retreats.

If your board meets for a weekend strategy session and you document it properly with minutes, that trip becomes a legitimate business expense. Those same minutes help prove your deductions and strengthen your corporate protection. That’s what I call the Family Office model: treating your business like the serious enterprise it is and bringing your family into the wealth-building process.

The IRS wants you to hold these meetings. It keeps your structure compliant, your deductions safe, and your business protected.

The Bottom Line

The S corporation isn’t just another tax form. It’s a wealth strategy. It helps you reduce self-employment taxes, build long-term wealth through retirement planning, and unlock deductions the right way. The wealthy use it because it works—year after year.

If your business is netting $40,000 or more and you haven’t made the S corp election yet, it’s time. My team at KKOS Lawyers can help you set it up, make sure your payroll and minutes are done right, and build your structure for real protection.

Save taxes, protect your income, and start building real wealth the S corporation way.