S-Corp vs. LLC Tax Savings Calculator
Estimate how much an S-Corp election could save you in self-employment tax versus a standard LLC. Enter your profit and a reasonable salary to see the difference. Free, no sign-up.
Uses 2026 rates: 12.4% Social Security on earnings up to $184,500, plus 2.9% Medicare with no cap. Self-employment tax applies to 92.35% of net profit.
This is an educational estimate of payroll/self-employment tax only — not tax, legal, or accounting advice. It does not include income tax, the QBI deduction, state fees, or your full situation. Talk to a qualified professional before electing S-Corp status.
How the S-Corp tax savings work
If your business is a single-member LLC taxed as a sole proprietorship, you pay 15.3% self-employment tax on essentially all of your net profit. That covers Social Security and Medicare.
When you elect S-Corp status, you split your profit into two parts: a reasonable salary that runs through payroll (and is subject to the same Social Security and Medicare taxes), and distributions, which are not. The tax savings come from the profit you take as distributions instead of salary.
The catch: reasonable salary and added costs
The IRS requires S-Corp owners to pay themselves a reasonable salary for the work they do before taking distributions. Setting it artificially low to dodge payroll tax is one of the most common S-Corp audit triggers. An S-Corp also costs more to run — you have payroll to process, a separate 1120-S tax return to file, and usually more bookkeeping. Those costs eat into the savings, which is why an election typically makes sense only once profit is comfortably above a reasonable salary.
The numbers above are an estimate to help you have an informed conversation — not a recommendation to elect S-Corp status. Your accountant should confirm the salary, the timing, and whether it is the right move for your situation.
What the savings number does — and doesn't — include
The calculator compares one thing: self-employment tax as a default LLC versus payroll tax on a reasonable salary as an S-Corp, minus the added costs you enter. It deliberately leaves out federal and state income tax (broadly similar under both, since both are pass-throughs), the QBI deduction (which an S-Corp salary can actually reduce), retirement-plan interactions, and state-level fees. A positive number here is a reason to have the conversation with a tax professional — not a reason to file Form 2553 this afternoon.
LLC (default) vs. S-Corp election, side by side
| LLC (default taxation) | LLC with S-Corp election | |
|---|---|---|
| Self-employment / payroll tax | 15.3% on ~92.35% of all net profit | 15.3% on the salary portion only; distributions avoid it |
| Payroll requirement | None — owner draws | Required: W-2 salary, payroll filings, W-2/941s |
| Tax return | Schedule C on your 1040 | Separate 1120-S return + K-1 |
| Typical added yearly cost | — | Payroll service + 1120-S prep (enter yours in the calculator) |
| Bookkeeping standard | Clean books recommended | Clean books effectively required — salary vs. distributions must be documented |
The number everything hinges on: reasonable salary
The IRS requires S-Corp owner-employees to take a reasonable salary before distributions — set it too low and the savings you calculated can be reclassified away, with penalties on top. What counts as reasonable depends on your role, hours, industry pay, and what your business actually earns. Our guide to reasonable compensation for S-Corp owners walks through how the number gets set and documented. This is exactly the decision to make with a tax professional, with clean books in front of you.
Frequently asked questions
A sole-proprietor LLC pays 15.3% self-employment tax on all net profit. An S-Corp owner pays that tax only on a reasonable salary and takes the rest as distributions, which are not subject to Social Security and Medicare tax.
What you would pay someone else to do your job — based on your role, hours, experience, and industry. Setting it too low to avoid payroll tax is a common audit trigger.
Generally once net profit is comfortably above a reasonable salary — often around $60,000+ — so there is meaningful profit to take as distributions and the savings outweigh the added payroll, tax-filing, and bookkeeping costs.
No — it estimates only self-employment and payroll tax. Income tax is generally similar either way since both are pass-through entities. It also does not model the QBI deduction or state fees.
Not sure if an S-Corp is right for you?
We keep clean books so your salary, distributions, and payroll are easy to support — and easy to hand to your tax preparer. Spanish-friendly support available.