It has to sit within the company. You can use it to buy an ice sculpture for the office lobby, but not for your own palazzo.
As you can imagine, there is a ton of bookkeeping and bureaucratic pain associated with having an S-corp (like pretending to have annual meetings, and having to write minutes for them).
The other half of the "claim a low salary" S-corp dodge is that distributions (the standard way LLC's pay their principals, and the standard way S-corps pay "profit sharing") aren't payroll-taxed (technically: aren't self-employment taxed).
So I think the trick here is, you pay yourself $70k in salary, but issue yourself a $30k profit sharing distribution.
I don't think this is true. If you buy an ice sculpture for the office lobby, it's totally tax deductible (it's a business expense), but you can use money for whatever you want if you take it out of the bank as a "distribution" instead of a "paycheck." In that situation, you still pay income tax on the money, but not the other taxes.
IANAL, but this might still cause trouble if the firm has cashflow issues. If there's a $10k distribution one quarter, and the next quarter a $10k bill can't be paid, suddenly you're pierced.
I can attest that having a S-corp is a lot of work (or, rather, is expensive 'cause you usually just pay a lawyer to deal with all the bookkeeping and other requirements).
As you can imagine, there is a ton of bookkeeping and bureaucratic pain associated with having an S-corp (like pretending to have annual meetings, and having to write minutes for them).