S-Corp Tax Savings Calculator
See what electing S-corp status would really save you in 2026 versus staying a sole proprietor or default LLC — net of payroll, tax-prep and state costs, and the QBI deduction most calculators quietly ignore. Includes a reasonable-salary check and a break-even by profit.
Uses the net profit and W-2 salary from the Tax Savings tab. The IRS wants your salary to reflect the market rate for the work you do — not a percentage of profit. Enter that market rate below to sanity-check your split.
Net S-corp saving at each profit level, using your salary-to-profit ratio (—), filing status and cost from the Tax Savings tab. The row nearest your profit is highlighted. Positive = an S-corp keeps more after every cost.
| Net profit | W-2 salary | Sole prop tax | S-corp total cost | Net saving |
|---|
S-Corp vs LLC vs Sole Proprietor: What's Actually Different
The most common confusion this calculator clears up: an LLC is a legal entity, while an S-corp is a tax election — they aren't competing choices in the way people assume. When someone runs an "LLC vs S-corp calculator," what they're really comparing is how the same business is taxed under two different elections.
By default, a single-member LLC is a "disregarded entity" — it's taxed exactly like a sole proprietor, on Schedule C, with 15.3% self-employment tax on all net profit. Nothing changes tax-wise just by forming an LLC. An S-corp is what you get when an LLC (or corporation) files Form 2553 and elects to be taxed under Subchapter S. After that election, you split your income into a reasonable W-2 salary (which pays payroll tax) and distributions (which don't pay self-employment or payroll tax). That split is the entire source of the saving.
So "S-corp vs sole proprietor" is the real tax comparison — and you can be an LLC in either camp. You keep the LLC's legal liability protection either way; the S-corp election just changes the tax math on top.
Side-by-Side: Sole Proprietor / LLC vs S-Corp (2026)
| Sole Prop / Default LLC | S-Corp Election | |
|---|---|---|
| Self-employment / payroll tax | 15.3% on 92.35% of all net profit | 15.3% on your W-2 salary only; distributions are exempt |
| Federal income tax | Same brackets on profit after deductions | Same brackets on salary + distribution |
| QBI deduction (§199A) | 20% of net profit | 20% of distribution only — wages aren't QBI, so it's smaller |
| Payroll & filing | Schedule C on your 1040 — no payroll | Run payroll, file Form 1120-S + K-1, W-2 |
| Typical extra cost | $0 beyond your usual return | $1,500–5,000/yr (payroll, 1120-S, state fees) |
| Legal liability | Protected only if you formed an LLC | Protected (LLC or corporation underneath) |
| IRS scrutiny | Low | Reasonable-compensation audits if salary looks low |
How the S-Corp Tax Saving Actually Works
As a sole proprietor you pay 15.3% self-employment tax — 12.4% Social Security (up to the $184,500 wage base in 2026) plus 2.9% Medicare — on 92.35% of your entire net profit. That's on top of federal income tax.
Elect S-corp status and you become an employee of your own company. You pay yourself a reasonable salary, which is subject to the same 15.3% (now called payroll/FICA tax, split between the company and you). The remaining profit is taken as a distribution — and distributions carry no Social Security or Medicare tax. On a $120,000 profit with a $65,000 salary, roughly $47,500 of distribution escapes the 15.3%, saving about $7,000 in raw self-employment tax.
But that headline number is where most calculators stop — and it's misleading. Paying yourself W-2 wages shrinks your QBI deduction, because wages don't count as qualified business income. In the same example the QBI deduction drops from about $24,000 to $9,500, which quietly adds roughly $3,400 back in federal income tax. Subtract the $2,500 cost of running the S-corp and the real saving is closer to $1,100, not $7,000. This calculator shows you all three lines so you see the true net figure — that's the whole point.
Reasonable Salary for an S-Corp Owner
Your salary is the pressure point of the whole strategy. Pay yourself too much and you hand back the self-employment-tax saving; pay too little and you invite an IRS reasonable-compensation audit. The S-corp reasonable salary calculator in the tab above lets you test any salary against the going market rate for your role and grades the audit risk.
There is no 60/40 rule. No IRS regulation, revenue ruling or court decision establishes 60% salary and 40% distribution — or any fixed ratio. The IRS applies a facts-and-circumstances test: your training and experience, duties, time devoted to the business, what comparable businesses pay for similar services, and your dividend history. In JD & Associates v. United States and similar cases, courts rejected mechanical percentages in favour of market-rate analysis.
The defensible approach is the "reasonable replacement cost" — what you'd have to pay an employee to do your job — often supported by wage data (BLS, salary surveys, or a formal report from a tool like RCReports). Because the OBBBA made the QBI deduction permanent in 2026, the incentive to lowball salaries went up, and so has IRS enforcement. Document how you arrived at your number.
When Is an S-Corp Worth It?
The rule of thumb is that an S-corp starts to pay off somewhere around $75,000–$80,000 of net profit, but the honest answer is "it depends on your salary and your costs" — which is exactly what the Savings by Profit tab maps for your figures.
Below the break-even, the $1,500–5,000 you spend on payroll, an 1120-S return and state fees outweighs the self-employment tax you save on a small distribution. Above it, the distribution is large enough that the saving clears those costs. High-tax states add a wrinkle: California charges a 1.5% S-corp franchise tax, and some states levy their own entity taxes — fold those into the cost field so your break-even is realistic.
An S-corp also isn't only about tax. It formalises payroll (useful for mortgages and retirement plan contributions), but it adds real admin and locks you into running payroll even in a lean year. If your profit is volatile or near the break-even, staying a sole proprietor or default LLC is often the simpler, safer call.
Frequently Asked Questions
Sources & how we calculate
For the sole proprietor we apply 15.3% self-employment tax on 92.35% of net profit (Social Security capped at the $184,500 2026 wage base, Medicare uncapped), the half-SE-tax deduction, the 2026 federal brackets and standard deduction, and a 20% QBI deduction. For the S-corp we charge 15.3% payroll tax on your salary only, deduct the employer's share and running cost from business income, tax salary plus distribution at the same brackets, and apply QBI to the distribution only (wages don't count as QBI). The difference in after-tax take-home is your net saving. Everything runs in your browser from the figures you enter; QBI is simplified as 20% of business income and state taxes are excluded.
Official sources: IRS — Self-Employment Tax · IRS — S-Corp Shareholder Wages · IRS — QBI Deduction (§199A) · IRS — Form 2553 · SSA — 2026 Wage Base
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