Profit sharing, salaries, and draws
We are a 2 person 50/50 split S-corp. We take relatively low salaries ($70K) and draws over $200K. We would like to offer an employee profit sharing of 5%. However, with our salaries so low, the profit is skewed. If we were to increase our salaries to $200K and make our draws $70K (that becomes the profit), what would the tax implications be? I believe we would pay more in taxes up front for anything below $147K but would that be offset by lower draws. Also that would mean much lower profit payments that would also offset our higher payroll taxes. Thank you for your help.
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