Your Business
Net income after all business expenses
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⚠️ Important: This calculator estimates tax math only. Always consult a CPA before electing S-Corp status — state fees, legal structure, and reasonable salary requirements vary significantly.
Sole Prop vs S-Corp
SE tax comparison — 2026 rates
Sole Proprietor / LLC
SE tax on all net income
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Self-employment tax
S-Corporation
Payroll tax on salary only
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Payroll tax (salary only)
Net Annual Savings After S-Corp Costs
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Full Comparison
Net Business Income
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Sole Prop SE Tax (15.3% on all)
92.35% × net income × 15.3%
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S-Corp Salary
Subject to payroll taxes
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S-Corp Distribution
Not subject to payroll or SE tax
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S-Corp Payroll Tax (15.3% on salary)
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Gross SE Tax Savings
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S-Corp Annual Costs
Payroll service + extra CPA filing
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Net Annual Savings
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⚠️ Estimates SE/payroll tax savings only. Does not include state franchise taxes, income tax differences, or full administrative burden. "Reasonable compensation" is required by the IRS — salary too low is an audit trigger. Not tax, legal, or financial advice. Consult a CPA before electing S-Corp.
How It Works
The S-Corp tax strategy explained
SE Tax
The problem it solves
As a sole proprietor or LLC you pay 15.3% SE tax on all net income. At $100K that's $14,130 — the single largest avoidable tax cost for most self-employed workers. S-Corp election targets this specific cost.
Salary+Dist
How the S-Corp saves
An S-Corp splits income into a W-2 salary (subject to payroll tax) and distributions (not subject to SE or payroll tax). Only the salary triggers 15.3% payroll tax. Distributions avoid it entirely — those are your savings.
~$60–80K
The breakeven point
S-Corp costs — payroll service, extra CPA filing (Form 1120-S), and state fees — typically run $2,500–$5,000/year. The math usually doesn't work until net income consistently exceeds $60,000–$80,000. Above $100K the savings are substantial and compound annually.
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FAQ
S-Corp questions
What is a "reasonable salary" for S-Corp purposes?+
The IRS requires S-Corp owners who perform services for their business to pay themselves what a comparable employee would earn — roughly what you'd pay someone else to do your job. Most CPAs recommend 40–60% of net income as a starting point. Setting salary too low is a primary S-Corp audit trigger.
When is the deadline to elect S-Corp status for 2026?+
To have S-Corp status effective for the entire 2026 tax year, you must file IRS Form 2553 by March 15, 2026. If that deadline passed, S-Corp status would take effect January 1, 2027. New businesses have a 2-month and 15-day window from formation to elect for that initial year.
Does S-Corp make sense under $60,000 net income?+
Generally no. S-Corp administrative costs (payroll service + Form 1120-S + state fees) typically total $2,500–$5,000/year. If net income is $60K and you pay yourself a $40K salary, gross SE tax savings are ~$3,060 on the $20K distribution. After S-Corp costs the net benefit is minimal or negative. The math becomes compelling at $80K+ in consistent net income.
Can a single-member LLC elect S-Corp status?+
Yes. A single-member LLC is by default taxed as a sole proprietorship. By filing Form 2553, the LLC elects S-Corp tax treatment without changing its legal structure — the LLC retains its liability protection. This combination (LLC legal structure + S-Corp tax election) is one of the most common setups for self-employed professionals above the breakeven threshold.