S-Corp vs. LLC Tax Savings Calculator

Electing S-corp status can cut your self-employment tax bill — but only past a certain profit level, and only after accounting for the extra costs of running one. This calculator compares both paths side by side using your real numbers.

Tax year 2026Last updated September 18, 2026

"Reasonable salary" is an IRS facts-and-circumstances test (roughly: what you'd pay someone else to do your job), not a formula. "Suggest a starting point" fills in 50% of your net profit — the middle of the 40-60% range advisors commonly cite as a rough starting point — not an IRS-sanctioned number; adjust it to a defensible figure for your actual role and industry.

Sole prop / LLC vs. S-corp

Sole proprietor / LLC total tax

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Self-employment tax
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Federal income tax
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State income tax
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S-corp total tax + costs

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Payroll tax (both halves)
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Federal income tax
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State income tax
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Extra running costs
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Estimated annual savings with an S-corp

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Estimates for tax year 2026, for informational purposes only — not tax, legal, or accounting advice. Does not model state-level S-corp entity taxes or fees (several states, notably California, charge these separately), unemployment insurance on S-corp payroll, or the cost of setting up the entity. Consult a CPA before electing S-corp status.

How the comparison works

As a sole proprietor or single-member LLC, your full net profit is subject to 15.3% self-employment tax before income tax even enters the picture. An S-corp splits your income into two pieces: a W-2 salary (subject to the same combined payroll tax rate, split between "employer" and "employee" shares) and a distribution of the remaining profit, which skips payroll tax entirely but is still taxed as ordinary income — and, unlike wages, can qualify for the QBI deduction. The catch is that an S-corp costs more to run: payroll processing, a separate corporate tax return (Form 1120-S), and sometimes state-level entity fees.

Worked example: $150,000 net profit

A single Texas freelancer with $150,000 in net profit, paying themselves a $70,000 "reasonable" salary through an S-corp, with $600/year in extra payroll costs and $1,000/year in extra tax-prep costs:

Worked example: $45,000 net profit

The same setup at a much smaller scale — $45,000 net profit, a $35,000 salary, same running costs — shows why S-corps don't make sense for every income level:

What this calculator doesn't model

Real-world S-corp math has a few more moving parts than v1 covers here: state-level S-corp entity taxes or minimum fees (notably California's 1.5%-of-income tax with an $800 minimum), unemployment insurance (FUTA/SUTA) on the S-corp payroll, and one-time entity setup costs. These generally push the true S-corp cost up somewhat from what's shown — factor them in before deciding, especially if you're in a state with its own S-corp tax.

Frequently asked questions

How does an S-corp actually save on self-employment tax?

As a sole proprietor or single-member LLC, your entire net profit is subject to the 15.3% SE tax. As an S-corp, only the salary you pay yourself is subject to the equivalent payroll tax (split as employer and employee FICA) — the remaining profit, paid out as a distribution, isn't subject to SE tax or payroll tax at all, though it's still subject to income tax.

What counts as a "reasonable salary"?

The IRS doesn't publish a formula — it's a facts-and-circumstances test based on what you'd have to pay someone else to do your job, considering your role, industry, experience, and time commitment. Setting it artificially low purely to dodge payroll tax is a well-known audit trigger; the IRS has successfully reclassified distributions as wages (with back taxes and penalties) in multiple court cases.

At what income level does an S-corp start making sense?

There's no official threshold, but as a rule of thumb, most advisors suggest at least $40,000-$60,000 in net profit before the SE-tax savings reliably outweigh the added costs of payroll processing, a separate corporate tax return, and (in many states) additional state-level fees or franchise taxes. Below that, the fixed costs of running an S-corp often exceed what you'd save.

Does this calculator include the extra state-level costs of an S-corp?

Only the generic payroll and tax-prep costs you enter — not state-specific S-corp taxes or fees. Several states charge these separately: California, for example, imposes a 1.5% tax on S-corp net income (minimum $800/year) on top of everything modeled here, which can meaningfully change the math for California filers.

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