Do business owners get taxed on income after paying employees or before?

Business owners are taxed on their profits, which is income AFTER deducting legitimate business expenses - including employee wages. This is true regardless of your business structure (sole proprietorship, LLC, corporation, etc.). If you're running the business as a sole proprietorship or single-member LLC (taxed as a disregarded entity), you'll report business income and expenses on Schedule C of your personal tax return. Employee wages are 100% deductible as a business expense, reducing your taxable income. You'd only pay taxes on that $120K profit ($280K revenue minus $160K payroll). If you elect S-Corp taxation, you'll need to pay yourself a reasonable salary (subject to payroll taxes), but any remaining profits can be distributed as dividends, which aren't subject to self-employment tax. This might save you some money, but comes with more paperwork. Just remember you'll have additional employer responsibilities like payroll taxes (your share of FICA, FUTA, etc.) and quarterly estimated tax payments on your profits.

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For my small business (S-Corp), here's how the tax situation works with employees: 1. My business earns revenue 2. I deduct ALL legitimate business expenses including: - Employee wages and benefits - Contractor payments - Rent, utilities, equipment - My own reasonable salary 3. The remaining profit flows to my personal tax return 4. I pay income tax on that profit, but not self-employment tax The big advantage is employee costs are fully deductible. But remember you're still responsible for employment taxes on their wages (social security, medicare, etc). This is separate from your income tax on profits.

I've been a small business owner for 6 years and the tax situation REALLY depends on your business structure: Sole Prop / LLC (default): Revenue minus expenses (including employee wages) = your profit. You pay BOTH income tax AND self-employment tax (15.3%) on all profits. S-Corp: You pay yourself a reasonable salary (subject to payroll taxes) PLUS you can take distributions from remaining profits (NOT subject to self-employment tax). C-Corp: The business itself pays corporate tax on profits after all expenses. Then you pay personal income tax on whatever salary the business pays you. Double taxation but some advantages for reinvestment. Your tax advisor can run the numbers based on your specific situation, but generally S-Corps become advantageous once you're making $80K+ in profit.

This is exactly the confusion I had when I started my consulting firm! The good news is that employee wages are definitely deductible business expenses, so you're only taxed on profits AFTER paying your team. With your projected numbers ($280K revenue, $160K payroll), you'd be looking at roughly $120K in taxable profit (minus other business expenses like office rent, equipment, etc.). One thing to consider early: if you're planning to hire employees vs. contractors, there are different tax implications. W-2 employees require you to withhold and pay employment taxes, while 1099 contractors handle their own taxes but have stricter classification rules. Also, with $120K+ in expected profit, the S-Corp election could save you significant money on self-employment taxes. You'd pay yourself a reasonable salary (maybe $60-80K based on consulting industry standards) and take the rest as distributions. The salary gets hit with payroll taxes, but distributions only face income tax. Definitely recommend talking to a tax professional before making the S-Corp election though - there are deadlines and it's hard to undo once you make the choice.