I had mused: <<the whole point of an S-Corp is that you don't have to pay self-employment tax on all of your earnings>>

To which qbteachmt replied: <<Uh, not really. The point of forming a corporation is because it makes sense to incorporate....>>

Good point. It is only one reason. I do remind my clients that they still have to pay the 15.3% on all earned income, whether it gets split up into employer's portion and employee's portion, or whether it's reported on Schedule SE. But my point stands: a single-owner S-Corp doesn't have to pay that 15.3% on 100% of their net income. They can pay themselves a salary that's less than their company's net income, pay SE taxes only on their salary, and then ordinary income on the remainder. It's a perk that sole-props don't have.

qb says: <<and I've never seen this "40%" as guidance in anything other than this comment in this topic,>>

I hadn't seen it until recently, when another client brought it up. Since then, I've seen it in a couple of places, like I said, among them IRS pages. I know the IRS website isn't 100% accurate, but I trust it more than pension companies. It may be a recent thing, which is why we old dogs haven't heard it. I'm still over here using an abacus.

qb asks: <<You can't throw out the generic word "pension." Is there a plan? What type of plan? How does this employee participate? What sort of account(s) does this person have?>>

Yes, it is a SIMPLE, and the employee contributes 1/2 from their own salary and 1/2 from the company assets. I didn't think I needed to get into the weeds on the specifics of the plan in this question, because "pension" covers multiple types of plans that all have similar rules, so I used the generic term.

qb says: <<Try thinking of this example: you hire a person and pay them $100k. Your entity has a $300k loss. What is your employee qualified to contribute to their "pension" plan, in your estimation?>>

That's a great example. The fact that she's the sole owner of the company doesn't change the fact that she is a W-2 employee with a stated salary enrolled in the pension plan. 

Thanks.