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Verified 2026 Tax Year

S-Corp vs LLC
Tax Savings Calculator

See exactly how much self-employment tax you could save by electing S-Corp status. Real 2026 IRS rates. No guesswork.

+ 2026 SE Tax Rates
+ Real S-Corp Cost Estimates
+ 5-Year Projection
+ IRS-Sourced Math

Your Business Numbers

Four inputs. Takes about 60 seconds.

Tax math verified against IRS Publication 15 and IRC §1402
$
Your total business revenue minus deductible expenses, before paying yourself.
Affects state-level cautions. Federal savings are the same regardless of state.
Multi-owner S-Corps have additional complexity around varying salary allocations.
$
Typically 40–60% of profit. Leave blank and we'll estimate at 50% for you.
Also: Cheapest State LLC Calculator Compare formation + annual costs across all 50 states
Estimated Annual Tax Savings
$0
After S-Corp overhead costs
5-Year Total: $0
Breakeven Note: S-Corp election typically makes financial sense when net profit exceeds approximately $45,000–$60,000 per year. Below that, payroll and compliance overhead tends to exceed the SE tax savings.
LLC (Default Tax)
Net Profit —
SE Tax (15.3%) —
S-Corp Overhead —
Total Tax + Cost —
S-Corp Election
Net Profit —
FICA on Salary —
S-Corp Overhead —
Total Tax + Cost —

5-Year Cumulative Savings Projection

Important: S-Corp Complexity Requirements
  • You must run W-2 payroll and pay yourself quarterly
  • File quarterly payroll tax returns (Form 941) with the IRS
  • File Form 1120-S (separate S-Corp tax return) annually
  • Issue yourself a W-2 by January 31 each year
  • Maintain a dedicated business bank account and payroll service
  • File Form 2553 with the IRS to elect S-Corp status (see IRS deadline rules)

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Disclaimer: This calculator provides general estimates based on 2026 IRS self-employment tax rates and is not tax advice. Individual results will vary based on income level, filing status, state taxes, deductible business expenses, and other factors. Self-employment tax calculations are based on IRS Schedule SE, IRC §1402, and IRS Form 2553 guidelines. Always consult a licensed CPA or tax attorney before making any entity elections. This estimate does not account for the Medicare Additional Tax (0.9%) applied to earned income over $200,000 (single) / $250,000 (married filing jointly), which would further increase savings above those thresholds.
How This Works

What an S-Corp Election Actually Does — and When It Makes Sense

What Is an S-Corp Election?

An S-Corp election does not change your LLC into a corporation. It is a federal tax reclassification only, filed on IRS Form 2553. Your LLC remains an LLC under state law — same Articles of Organization, same operating agreement, same liability protections. The only thing that changes is how the IRS taxes you.

By default, a single-member LLC is taxed as a "disregarded entity" — all net profit flows to your personal return as self-employment income, and you pay 15.3% self-employment tax on every dollar. After electing S-Corp status, you split your income into two buckets: a W-2 salary (subject to FICA) and profit distributions (not subject to SE tax). That split is where the savings come from.

Why the "Reasonable Salary" Rule Exists

The IRS requires S-Corp owners to pay themselves a salary because, without that requirement, every owner would take $0 salary and pay no employment taxes. Congress closed this loophole through the "reasonable compensation" requirement (Rev. Rul. 74-44).

"Reasonable" generally means what you'd pay a non-owner employee to perform the same work. Courts have found that roughly 40–60% of net profit is defensible for most solo service businesses, but it depends on your industry, hours worked, and comparable salaries in your market. Your CPA should document the reasoning behind your salary figure.

Common Audit Triggers to Avoid
  • Unreasonably low salary. Taking $1 salary on $200K profit is the most-audited S-Corp fact pattern.
  • Missing payroll filings. Form 941 is due quarterly. Late filings are expensive.
  • Irregular distributions. Sporadic large distributions vs. regular salary can look like disguised wages.
  • No documentation. The IRS expects to see how you arrived at your "reasonable" salary figure.
  • Late Form 2553. Electing after the deadline requires IRS relief. Missing it means defaulting back to SE taxation for the year.
When S-Corp Does NOT Make Sense
  • Profit under ~$45,000–$60,000. Payroll and compliance costs typically exceed savings at this level.
  • Multiple owners with different profit-sharing needs. S-Corps cannot have more than 100 shareholders and cannot issue different share classes, limiting flexibility compared to a standard LLC.
  • California businesses. CA charges a 1.5% state franchise tax on S-Corp net income with an $800 minimum, reducing federal savings.
  • Businesses planning to raise outside equity. S-Corps have strict shareholder rules that complicate venture or angel investment.
  • Short runway businesses. If your profit is volatile year-to-year, locking in payroll overhead can be costly in a down year.
The Math in Plain Language

Here is the formula this calculator uses:

LLC SE Tax = Net Profit × 0.9235 × 15.3%
S-Corp FICA = Reasonable Salary × 15.3% (employer + employee, both borne by owner-employee)
Gross Savings = LLC SE Tax − S-Corp FICA
Net Savings = Gross Savings − S-Corp Overhead ($1,000–$2,500/yr estimated)
Social Security wage base cap (2026 est.) = ~$175,000 (12.4% SS only applies up to this; Medicare 2.9% applies to all wages)

Note: The 0.9235 multiplier reflects the IRS self-employed tax deduction (you deduct half your SE tax from gross income, which slightly reduces the taxable base). Source: IRS Schedule SE.

Frequently Asked Questions

Savings depend on your net profit and the reasonable salary you pay yourself. The savings come from the portion of profit above your salary that avoids self-employment tax (15.3%). For example, if your profit is $120,000 and your reasonable salary is $60,000, the $60,000 distribution escapes SE tax, saving approximately $9,180 — minus S-Corp administrative costs of roughly $1,000–$2,500 per year for a net savings of $6,680–$8,180. Use the calculator above for your specific numbers.
The IRS requires S-Corp owner-employees to pay themselves compensation comparable to what you would pay someone else for the same work. This salary is subject to FICA taxes (totaling 15.3%). Only profit distributions above this salary avoid self-employment tax. Paying yourself an unreasonably low salary to minimize FICA is one of the most common IRS audit triggers for S-Corps. Your CPA should document the methodology behind your salary figure.
An S-Corp election typically makes financial sense when your LLC's net profit is approximately $45,000–$60,000 per year or higher. Below that threshold, the cost of payroll administration (roughly $500–$1,000/yr), a separate S-Corp tax return ($500–$1,500/yr), and quarterly compliance work tends to exceed the self-employment tax savings. Above $75,000 in profit, the savings are usually meaningful for most single-owner businesses.
No. Filing Form 2553 with the IRS is a tax election only. Your LLC remains an LLC under state law. The same Articles of Organization, operating agreement, and liability protections stay in place. From the IRS's perspective, your LLC is taxed as an S-Corporation — but Wyoming, Texas, or whichever state you formed in still recognizes it as a limited liability company.
Form 2553 is the IRS election form to have your LLC taxed as an S-Corporation. For new LLCs, you must file within 75 days of formation (or the start of the tax year you want the election to take effect). For existing LLCs, you must file by March 15 to elect S-Corp treatment for the current calendar tax year. Late elections are possible in some circumstances but require IRS relief under Rev. Proc. 2013-30. See the full instructions at IRS.gov/form2553.
Once you elect S-Corp taxation, you must: run W-2 payroll and pay yourself a reasonable salary quarterly; file quarterly payroll tax returns (Form 941) with the IRS; issue yourself a W-2 by January 31 each year; file Form 1120-S (the S-Corp informational return) annually; and issue Schedule K-1 to each owner. You will also need a dedicated payroll service or CPA. Attempting to handle S-Corp compliance manually without accounting experience is error-prone and the penalties are significant.
Yes. California charges a 1.5% state S-Corp franchise tax with an $800 minimum, which reduces your federal savings. New York City taxes S-Corps at the entity level — NY state and NYC residents should run numbers carefully. Tennessee imposes an excise tax on S-Corp net income. Always consult a CPA familiar with your specific state's treatment of S-Corps before making the election.