USA Small Business 20% Deduction vs S-corp election?

Sep 15, 2018
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United States
I'm sole member of an LLC. YTD, I've drawn no wage. I've simply taken draws on the pass-through income. Currently it's a pass-through entity and no an S-corp election. I'm a consultant.

This LLC was created effective Jan 1, 2018.

My married-filed-jointly AGI will be less than $315K in 2018. My net business income will be around $200k. I have no other sources of income, and my spouse does not work.

I am debating paying myself W-2 income effective immediately for remainder of year and doing an S-Corp election (late) effective Jan 1, 2018.

However, if I'm entitled to 20% small business deduction on the pass-through income, that seems to more than offset the SE tax that would be saved if I did W-2 salary on an S-Corp election.

What is the gain from paying myself W-2 salary, and not having that income count as the 20% deduction?

Am I understanding this situation right?

Thanks for clarifying.


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