S Corp vs LLC Tax Savings Calculator
An LLC is simple. An S-corp can be cheaper on taxes. This calculator shows you, with 2026 IRS numbers, exactly where the savings come from and whether they survive the extra paperwork costs.
Run your numbers
How the taxes actually differ
Strip away the labels and there is one moving part: what the 15.3% employment tax applies to.
The LLC (default taxation)
A single-member LLC is taxed like a sole proprietorship; a multi-member LLC like a partnership. Either way, you pay self-employment tax of 15.3% on 92.35% of your net profit. That 15.3% is 12.4% for Social Security (on earnings up to $184,500 in 2026) plus 2.9% for Medicare (no cap). Earn over $200,000 as a single filer and another 0.9% Medicare surtax applies. Every dollar of profit gets hit. There is no way to carve out a piece of it.
The S-corp election
Elect S-corp taxation and the same 15.3% now applies only to your W-2 salary, split as 7.65% employee and 7.65% employer payroll tax. Profit you take as distributions is not subject to Social Security or Medicare tax at all. That gap, salary versus total profit, is the entire savings engine.
A concrete example
Take $100,000 of profit and a $50,000 salary. As an LLC, self-employment tax lands around $14,130. As an S-corp, combined payroll tax on the $50,000 salary is about $7,650. The difference, roughly $6,480 a year, is the gross savings. Then subtract payroll service and an extra tax return, commonly $1,000 to $3,000 or more, to get the net.
What about income tax?
Both structures are pass-through: profit shows up on your personal return either way. Income tax is roughly a wash, which is why the calculator above compares employment tax only and says so openly. (There are second-order differences, like the deduction for the employer half of payroll tax, but they are small next to the employment-tax gap.)
The reasonable salary rule
This is where S-corp owners get in trouble. The IRS requires officers who perform services for an S-corp to receive reasonable compensation, and it can reclassify distributions as wages when the salary is a sham. Pay yourself $20,000 while the business nets $200,000 and the IRS can reclassify your distributions as wages, then bill you for the payroll tax plus penalties and interest.
What counts as reasonable? The IRS looks at the role, the hours, your qualifications, and what comparable businesses pay for similar work. There is no published formula, no 50% rule, and no minimum. Document your reasoning: a salary survey for your job title in your area, plus notes on your duties, beats a round number every time.
Two practical guardrails:
- Salary has to be fundable. W-2 wages come out of business funds, so the salary you set needs to be supportable by what the business brings in and holds.
- Low profit means low savings. If a defensible salary eats nearly all the profit, there is nothing left to distribute and the S-corp buys you nothing but extra filings.
When does the S-corp usually win?
You will see $60,000 to $80,000 of annual profit quoted a lot as the breakeven point. Treat that as a rule of thumb, not a fact. It comes from a simple observation: below that range, a reasonable salary usually consumes most of the profit, so there is little left to shield from self-employment tax, and the added payroll and tax-prep costs eat the rest.
The real breakeven moves with your inputs:
- Higher reasonable salary, later breakeven. A specialist whose market pay is $90,000 needs far more profit before distributions are meaningful.
- More owners, earlier breakeven per dollar. Savings scale per owner, since each owner shifts profit to distributions.
- Cheaper admin, earlier breakeven. Doing payroll yourself (carefully) versus paying a service can move the line by $1,000 or more.
- State quirks matter. California's $800 annual franchise tax and New York City's taxes can tilt the math; some states tax S-corps at the entity level too.
The honest test is the one above: plug in a salary your CPA would defend, subtract realistic admin costs, and see if the net number stays positive with room to spare.
Methodology: exactly what this calculator assumes
- Tax year 2026. Self-employment tax: 15.3% on 92.35% of net profit (12.4% Social Security to the $184,500 wage base, 2.9% Medicare with no cap). FICA on S-corp salary: 7.65% employee + 7.65% employer on the same base and cap. Additional Medicare tax of 0.9% applies above $200,000 of earnings, modeled at the single-filer threshold. Sources: SSA 2026 wage-base announcement, IRS guidance on self-employment tax.
- LLC side: the LLC is taxed as a disregarded entity (single owner) or partnership (multiple owners). All net profit is subject to self-employment tax. No S-corp election, no C-corp election.
- S-corp side: each owner takes the entered W-2 salary; remaining profit is distributed free of employment tax. Employer-half payroll tax is included in the S-corp employment-tax total.
- Multiple owners: profit is split equally; each owner pays tax on their own share, and the Social Security wage base applies per person.
- Federal income tax is simplified on purpose. Both structures are pass-through, so income tax is treated as roughly equal and excluded. The comparison isolates employment tax, which is the big, defensible difference.
- State income and entity taxes are excluded. The state dropdown shows your state's recurring LLC fees for context only; both structures pay them. Some states impose extra entity-level taxes on S-corps, which this tool does not model.
- Admin costs are your estimate. The default $1,500 covers payroll service and a separate corporate return; replace it with your actual quotes.
- Salary suggestion is a starting point. About 50% of the per-owner profit share with a $30,000 floor, capped at the profit share. It is not tax advice and not an IRS safe harbor.
Frequently asked questions
How much can an S-corp save me versus an LLC?
It depends on your profit and your salary. As a rough frame: an LLC owner pays 15.3% self-employment tax on 92.35% of net profit. An S-corp owner pays the same 15.3% combined payroll tax only on W-2 salary; distributions are exempt. On $100,000 of profit with a $50,000 salary, the employment-tax savings are roughly $6,480 a year before added payroll and tax-prep costs. Run your own numbers in the calculator above.
At what profit level does an S-corp start to make sense?
A commonly cited rule of thumb is around $60,000 to $80,000 in annual profit, but it is only a rule of thumb, not a fact. The real breakeven depends on your reasonable salary, how many owners there are, and what you pay for payroll service and an extra tax return. Businesses with very low or very seasonal profit often lose money on the election once admin costs are counted.
What is the reasonable salary rule for S-corps?
If you work in your S-corp, the IRS requires the business to pay you reasonable W-2 compensation for that work rather than taking everything as distributions. Reasonable means what the business would pay an unrelated person to do the same job, considering your duties, hours, experience, and comparable pay in your industry and area. There is no fixed formula or safe percentage.
Does an S-corp pay less income tax than an LLC?
Generally no. Both are pass-through structures, so business profit lands on your personal return either way. The S-corp advantage is almost entirely about employment tax: shrinking the base that Social Security and Medicare taxes apply to. Income tax is roughly a wash, which is why this calculator compares employment tax only.
What does it cost to run an S-corp each year?
Beyond state LLC fees, which you pay either way, expect payroll service costs and a separate corporate tax return (Form 1120-S). Together these commonly run $1,000 to $3,000 or more a year. The calculator subtracts your own estimate of these costs so you see the net benefit, not just the gross tax savings.
Can I switch my LLC to an S-corp later?
Yes. An LLC can elect S-corp taxation by filing IRS Form 2553 without changing its legal structure. The election is a tax choice, not a new entity. Timing rules apply, so check the filing deadlines with a CPA before you count on it for the current year.