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Generally wages are taxed higher compare to income passed on K1 to shareholders.So - by increasing wages - there will be additional employment taxes - but total income passed to shareholders - wages plus income passed on K1 will be essentially the same - and individual income tax liability for shareholders will not be reduced.Moreover - because wages are subject to additional employment taxes - it could be more beneficial from tax prospective to have larger portion of S-corporation income passed to shareholders on K1.
One way to reduce current tax liability is to set a retirement plan under S-corporation.Fro instance - if SEP is established - S-corporation may contribute up to 25% of wages for each employee - and that amount will be deducted for income tax purposes and still NOT subject to employment taxes.That way - contribution and earnings in SEP will be differed from income taxes - and will be taxed ONLY when actual distributions are taken.
Let me know if that addressed your question.