LLC vs S-Corp Calculator 2026 — How Much Would You Save?

How LLC vs S-Corp taxation differs

When you operate as a single-member LLC (or sole proprietor), the IRS treats all of your net profit as earned income — and you owe self-employment (SE) tax on 92.35% of it at a combined rate of 15.3% (12.4% Social Security + 2.9% Medicare) on income up to $184,500, plus 2.9% Medicare on everything above that. There's no split; the entire profit is subject to FICA.

When you elect S-corp status, your business still passes profits through to your personal return — but you split them into two buckets: (1) a W-2 salary you pay yourself, on which the company pays regular payroll taxes (FICA), and (2) distributions, which are not subject to FICA. The tax savings come from the distributions escaping the 15.3% self-employment tax. The trade-off is that the IRS requires a "reasonable" salary, and running payroll introduces real administrative overhead costs.

What is a reasonable salary?

The IRS does not publish an exact formula, but "reasonable" generally means what you'd pay someone else to do your job. For most service professionals (consultants, designers, attorneys, accountants), a common heuristic is 40–60% of net profit. If you're a solo software consultant making $150,000, a salary in the $70,000–$90,000 range is usually defensible. Setting the salary too low invites IRS scrutiny — the agency has won court cases against owners paying themselves $0 or $10,000 while taking $200,000 in distributions.

Factors courts and the IRS consider: your role, hours worked, industry compensation surveys, company profitability, distributions relative to salary. When in doubt, lean toward a higher salary within reason — the downside risk of IRS reclassification of distributions to wages (plus penalties and interest) far exceeds the marginal tax saved by underpaying yourself.

The hidden costs of an S-Corp

Most S-corp calculators online show only the gross SE tax savings and declare victory. That's misleading — S-corp status brings real overhead that erodes your savings:

• Payroll service ($500–$1,200/year)
  Once you're paying yourself a W-2 salary, you must run payroll every quarter and file quarterly 941 returns. Services like Gusto, Rippling, or ADP handle this for roughly $40–$100/month. Doing it manually is possible but risky — missed deadlines trigger automatic IRS penalties.
• Additional tax prep ($500–$1,500/year)
  S-corps file a separate business tax return (Form 1120-S) in addition to your personal return. CPA fees for this typically run $800–$2,000 more than a simple Schedule C return. Online software can reduce this, but most self-filers still hire a CPA for S-corp returns.
• State S-corp fees and franchise taxes ($50–$800+/year)
  Many states charge annual fees or franchise taxes on S-corps. California notoriously charges an $800/year minimum franchise tax just for the privilege of operating. New York has its own filing fees. Check your state's rules — some states don't recognize the S-corp election at all (e.g., New Hampshire, Tennessee) and tax the entity at the corporate level regardless.

This calculator is one of the few that explicitly models these costs. Enter your realistic total overhead in the "Added Annual S-Corp Costs" field to see your true net savings.

When does an S-Corp make sense?

The rule of thumb: S-corp elections typically begin to pay off around $80,000–$100,000 in annual net profit, assuming normal compliance costs. Below that, the overhead frequently exceeds the SE tax savings, leaving you worse off than a simple LLC. Above that threshold, the savings grow quickly because distributions above your salary escape both the 12.4% Social Security and 2.9% Medicare tax.

Other factors that push the breakeven higher: living in a state with high S-corp fees (California's $800 minimum pushes breakeven to $100,000+), using a more expensive CPA or payroll service, or operating in a profession where a high "reasonable salary" is required (e.g., physicians or attorneys often can't set a low salary without IRS pushback).

Factors that pull breakeven lower: low state fees, ability to DIY payroll with software, and already paying a CPA who includes the 1120-S at a discounted rate. Use this calculator's inputs to dial in your specific situation.

YMYL Disclaimer: Estimates only — not tax or legal advice. S-corp suitability depends on your state, profession, and full tax picture. Consult a CPA before electing S-corp status.

Frequently Asked Questions

• How does the S-corp save on self-employment tax?
  As an LLC, 100% of your net profit is subject to self-employment tax (15.3% up to the Social Security wage base). As an S-corp, only your W-2 salary is subject to payroll (FICA) taxes — distributions you take above the salary are not subject to FICA. So if you earn $100,000 profit, pay yourself a $60,000 salary, and take $40,000 as distributions, you pay FICA only on the $60,000, not the full $100,000. This calculator shows you the exact dollar difference.
• Is the S-corp savings on Social Security real if I'm over the wage base?
  Good question. The 2026 Social Security wage base is $184,500. If your total W-2 salary already exceeds $184,500, there are zero Social Security savings from the S-corp structure — you're already capped. All potential savings would come only from the 2.9% Medicare (and 0.9% Additional Medicare above $200K). At very high incomes, the S-corp savings shrink dramatically once the wage base is fully covered by salary.
• Does the headline savings number include income taxes?
  No — and we say so right in the results. The big green number is self-employment / payroll (FICA) tax only. The most important thing it leaves out is the QBI deduction (see the next question), which usually shrinks when you elect S-corp and pushes your true net benefit below the headline. We surface a rough estimate of that income-tax cost in the results so you don't take the FICA number at face value. Most S-corp calculators quietly omit this; ours flags it.
• How does electing S-corp affect my QBI (Section 199A) deduction?
  It usually reduces it. The 20% qualified-business-income deduction under §199A never applies to W-2 wages. Per the IRS Form 8995 instructions, "amounts received as reasonable compensation from an S corporation" are excluded from QBI — so the salary you pay yourself no longer earns the 20% deduction. As a sole proprietor / LLC, your full profit (minus the deductible half of your SE tax) is QBI and earns the deduction. Move to an S-corp and the salary portion drops out of that base, lowering your deduction. At a 22% bracket, losing, say, $12,000 of deduction costs roughly $2,600 in extra income tax — which can erase a big chunk of the FICA savings. (Above the 2026 §199A taxable-income threshold — about $201,750 single — wage-based limits make the interaction more complex and can flip the incentive toward a higher salary; this tool's estimate is a simplified guide, so check with a CPA.)
• Can I deduct the S-corp costs as a business expense?
  Yes. Payroll service fees, CPA fees for the 1120-S, and state fees are all deductible business expenses — they reduce your net profit and thus your income tax. They don't reduce self-employment or payroll taxes directly, so this calculator treats them as a net dollar cost to your FICA savings. Separately, note that on the LLC side, half of your self-employment tax is itself deductible against income tax (per the IRS) — a real break the headline FICA comparison does not credit to the LLC, which is one more reason the raw FICA-savings figure flatters the S-corp.
• Do I need to form an LLC first, then elect S-corp status?
  Not necessarily. You can elect S-corp status for an existing LLC by filing IRS Form 2553. Alternatively, you can form a corporation and elect S-corp treatment. Most advisors recommend the LLC → S-corp election route because LLCs have simpler governance, fewer formalities, and more flexible operating agreements. The S-corp election is a tax designation, not a change to your legal entity type. You have until March 15 of the tax year (or within 75 days of formation for a new entity) to make the election effective for that year.
• Why does the calculator show "LLC is better" at low profit levels?
  Because at low profit levels, the gross self-employment tax savings from distributing income above salary are small — sometimes only a few hundred dollars. When overhead costs (payroll service, CPA, state fees) are $1,500–$3,000+, the compliance cost exceeds the tax savings and you come out behind. The S-corp election is not inherently good — it's only beneficial when the profit level is high enough for the savings to clear the administrative hurdle. This calculator shows you the honest math, including the costs that most biased calculators ignore.
• What happens if the IRS reclassifies my S-corp distributions as wages?
  If the IRS determines your salary was unreasonably low, it can reclassify some distributions as wages — meaning you owe back payroll taxes plus interest plus a 100% trust fund recovery penalty. The IRS has increased S-corp audits in recent years specifically targeting this issue. The safest approach: pay a genuinely reasonable salary (benchmark it against similar roles in your industry), document your reasoning, and review it annually as your business grows.
• Are there states that don't recognize S-corp elections?
  Yes. Some states have their own corporate tax rules that override or ignore the federal S-corp election. California recognizes the election but still charges a 1.5% state-level S-corp tax on net income (minimum $800). New Hampshire and Tennessee have historically taxed investment/business income in ways that reduce S-corp advantages. Illinois, New Jersey, and New York City also levy additional entity-level taxes. Always check your state's specific treatment before electing S-corp status — your CPA should verify the state-level math alongside the federal calculation.