Tax Breakdown, The Sequel

Boy was I wrong:

-LLC investors who aren't involved in company management don't need to pay self-employment taxes.
-Like LLCs, S-corporations don't pay income taxes. In fact, the two entities are treated almost equally for tax purposes. The only tax benefit of an S-corporation is that managing owners don't pay self-employment tax on their ownership shares of income.
-Taxation as a C-corporation is the only way for investors to avoid paying taxes on reinvested income.

The redo is below. I could still be wrong, but I'll be less wrong than before.

Jane and I each own 25% of the company and pay ourselves $40,000/yr salaries. The company makes a $20,000 profit and keeps $4,000 of it. We have 10 additional investors who each own 5% of the business. Assume that all owners are in the 25% income tax bracket and that the corporate tax rate is 15%.

Default LLC taxation:
-The company doesn't pay income tax.
-Before taxes, my income is $45,000 and my take-home pay is $44,000. I owe $6,885 in self-employment (SE) tax on my income and am allowed to deduct half of it on my income tax form, so I report an income of $41,557.50. I pay $10,389.38 in income taxes and take home $26,725.62.
-Before taxes, each non-managing investor reports $1,000 as income and takes home $800. After paying $250 in income taxes, each investor takes home $550.

S-corporation taxation:
-The company doesn't pay income tax.
-Before taxes, my income is $45,000 and my take-home pay is $44,000. I owe $6,120 in self-employment (SE) tax on my salary and am allowed to deduct half of it on my income tax form, so I report an income of $41,940. I pay $10,485 in income taxes and take home $27,395.
-Before taxes, each non-managing investor reports $1,000 as income and takes home $800. After paying $250 in income taxes, each investor takes home $550.

C-corporation taxation:
-The company reports $20,000 in income and pays $3000 in income tax. The company still reinvests $4,000, so $13,000 is distributed to investors instead of $16,000.
-Before taxes, my income and take-home pay are both $43,250. I owe $6,120 in self-employment (SE) tax on my salary and am allowed to deduct half of it on my income tax form, so I report an income of $40,190. I pay $10,047.50 in income taxes and take home $27,082.50.
-Before taxes, each non-managing investor both reports and takes home $650. After paying $162.50 in income taxes, each investor takes home $487.50.

Up next: what would happen if we reinvested all of our earnings?