If you're a business owner who takes W2 wages from your S Corporation, that may not be your only taxable income. An S Corporation (S Corp) is a pass-through entity for tax purposes.

What does this mean? It means that the net profit generated by your S Corp is not taxed at the corporate level but rather passes through to your personal tax return. However, this pass-through feature can sometimes catch business owners off guard when it comes to calculating their taxable income.

Something that is commonly misunderstood by business owners is that net profit from your LLC or S Corp passes through to your personal tax return. Many business owners who take W2 wages from their S Corp assume that is their only taxable income. However, if your business is profitable, that is far from the truth.

This net profit is the remaining amount after deducting business expenses and paying your salary. It represents the earnings that pass through to your personal tax return.

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