LLC vs S-Corp Tax Calculator
Compare your total federal tax burden as a single-member LLC vs S-corp election, with SE tax savings, reasonable salary, QBI interaction, payroll costs, and break-even income shown side by side.
Built from IRC sections, Form 2553 and 1120-S instructions, Schedule SE, Rev. Proc. 2025-32, and the SSA wage-base release.
Net annual benefit
2026$0
Enter your numbers to see the comparison
Adjust the cost and QBI details Payroll cost, state tax, other income, SSTB
What you'd pay a payroll service (or accountant) to run W-2 payroll for one employee, per year. Typically $500 to $2,000+. There's no IRS standard; use a real quote if you have one.
Some states charge S-corps an annual franchise tax or entity-level tax that sole props don't pay. California: $800 minimum plus 1.5% of net income. New York, Illinois, and Texas also have material S-corp costs. Enter your state's annual S-corp cost here; leave $0 if your state has none.
Income from other sources that affects your tax brackets and QBI threshold. This includes a W-2 day job, spouse's income (if MFJ), or investment income. It doesn't change your SE tax or FICA, but it can push you past the QBI income limit or into a higher tax bracket.
SSTBs (health, law, accounting, consulting, financial services, performing arts, and a few others) lose the QBI deduction above the income threshold. If you're not sure, leave this at No; most businesses don't qualify as SSTB.
Only adjust these if they apply to you. The payroll cost is the biggest variable after your salary; the SSTB flag affects the QBI deduction above the income threshold.
Side-by-side tax comparison
| Line item | Sole prop LLC | S-corp |
|---|
Where the savings come from
CalcWise doesn't sell payroll services, CPA services, or LLC formation. This result has no built-in bias toward S-corp or sole prop. Many S-corp calculators are built by payroll companies or CPA firms that profit when you elect S-corp status.
This calculator doesn't model retirement plan differences. Under an LLC, solo 401(k) employer contributions are based on your net self-employment income. Under an S-corp, employer contributions are capped at 25% of your W-2 salary. A low S-corp salary can reduce how much you can put away for retirement compared to the LLC default, which can matter more than the tax savings if you're a high saver.
This is an estimate, not tax advice. It compares federal tax outcomes for planning. Your actual result depends on your real reasonable salary, state rules, and deductions. Electing S-corp status is a formal tax election with ongoing payroll obligations; confirm the decision with a CPA or enrolled agent before filing Form 2553.
The basics
What this comparison measures
This calculator compares two ways of taxing the same business income: a single-member LLC taxed as a sole proprietorship (the default) versus the same LLC electing S-corp status via Form 2553. Both are pass-through entities, so the income tax brackets are the same. The difference is how payroll and self-employment tax applies. This is one of the calculators in our Entity & Setup series, where we compare how different business structures are taxed.
Single-member LLC
An LLC with one owner. For federal tax purposes, a single-member LLC is taxed as a sole proprietorship by default unless the owner elects a different classification (such as S-corp status). The LLC is the legal entity; the tax classification is a separate choice.
S-corp (S corporation)
A tax classification, not a business entity type. An S-corp is a pass-through entity where business income, losses, deductions, and credits flow to the shareholders' personal tax returns rather than being taxed at the corporate level.
S election
The act of choosing S-corp tax treatment by filing Form 2553 with the IRS. The business keeps its state-law structure (LLC, corporation) but is taxed federally as an S-corp.
Form 2553
The IRS form used to elect S-corp tax status. It must be filed within 2 months and 15 days of the start of the tax year for the election to take effect that year, and all shareholders must sign it.
Reasonable compensation
The IRS requirement that an S-corp owner who performs services for the business must be paid a salary comparable to what a non-owner would earn for the same work. The IRS uses a multi-factor test (training, duties, time, comparable salaries, distribution history); there is no IRS-approved percentage formula. The "60/40 rule" you see online is a myth, not IRS guidance. Setting salary artificially low is the primary S-corp audit trigger.
SE tax (self-employment tax)
The 15.3% Social Security and Medicare tax (12.4% plus 2.9%) a sole proprietor pays on net business profit. It is the self-employed equivalent of FICA, the payroll tax that employers and employees split. The 12.4% Social Security portion is capped at the annual wage base.
FICA
The federal payroll tax (Federal Insurance Contributions Act) that funds Social Security and Medicare. Employers pay 7.65% and employees pay 7.65%, totaling 15.3% on wages. The 12.4% Social Security portion is capped at the annual wage base; the 2.9% Medicare portion has no cap.
QBI (Qualified Business Income)
The net profit from a pass-through business that is eligible for a 20% deduction under §199A. For a sole proprietor it is based on Schedule C net profit; for an S-corp owner it is based on the K-1 distribution, not the W-2 salary. The deduction phases out at higher incomes for service businesses.
K-1 distribution
The share of an S-corp's profit that passes through to the owner on Schedule K-1, after the owner's salary and the employer half of payroll taxes are paid. Distributions are not subject to FICA or self-employment tax, which is the core of the S-corp tax savings.
Break-even income
The net business profit level at which the self-employment tax savings from S-corp status exactly equal the added annual compliance costs. Above this point, S-corp status saves money; below it, the extra costs outweigh the savings.
Pass-through taxation
A tax structure where the business itself pays no income tax; instead, profits pass through to the owner's personal return. Both sole proprietorships and S corporations are pass-through entities, but they handle payroll taxes differently, which is what this calculator compares.
Employer FICA deduction
The 7.65% employer half of FICA that an S-corp pays on the owner's salary, which the S-corp deducts as a business expense. This reduces the profit that passes through to the owner as a K-1 distribution, which in turn slightly lowers the QBI deduction.
SSTB (Specified Service Trade or Business)
A category of service business under §199A (health, law, accounting, consulting, financial services, performing arts, and others) whose 20% QBI deduction phases out at lower income thresholds. If your business is an SSTB, the S-corp salary split can change how much QBI deduction you keep.
The math
The formula, and the order it runs in
The comparison runs two parallel calculations: the sole prop side pays SE tax on all net profit, and the S-corp side pays FICA only on the salary. The difference, minus payroll costs and the QBI change, is the net annual benefit.
Sole prop self-employment tax = Net profit × 92.35% × 15.3% (SS portion capped at wage base)
S-corp FICA = Reasonable salary × 15.3% (SS portion capped at wage base)
K-1 distribution = Net profit − Reasonable salary − Employer FICA (7.65% of salary)
Net annual benefit = (Sole prop SE tax − S-corp FICA) − Payroll costs − QBI deduction difference
Sole prop self-employment tax
Net profit times 92.35% times 15.3%, with the 12.4% Social Security portion capped at the wage base. This is your baseline tax cost as a sole proprietor.
S-corp FICA on salary
Reasonable salary times 15.3%, with the 12.4% Social Security portion capped at the wage base. The employer half (7.65%) is deductible by the S-corp.
K-1 distribution
Net profit minus the reasonable salary minus the employer half of FICA. This amount passes through to your personal return with no payroll or self-employment tax.
QBI deduction difference
Sole prop gets 20% of QBI (net profit reduced by the deductible half of SE tax); S-corp gets 20% of the K-1 distribution only. The salary shift can slightly reduce your QBI deduction, which offsets part of the savings.
Payroll and compliance costs
Payroll service fees, state unemployment tax, and the cost of filing Form 1120-S and running W-2s. These are the fixed costs S-corp status adds.
Net annual benefit
Sole prop self-employment tax minus S-corp FICA, minus payroll costs, minus the QBI deduction difference. Positive means S-corp saves you money; negative means it costs more than it saves.
The pieces that drive the comparison
Reasonable compensation. The IRS requires an S-corp owner who performs services to take a W-2 salary before taking distributions. The salary must be reasonable for the work performed, judged by a multi-factor test: training, duties, time devoted, what comparable businesses pay, and distribution history. There is no IRS-approved percentage formula. The "60/40 rule" is an internet myth, not IRS guidance. Setting salary artificially low to maximize the distribution is the single most common S-corp audit issue.
Payroll and compliance costs. S-corp status adds real annual costs: a payroll service ($500 to $1,200), a separate Form 1120-S tax return ($500 to $2,000 from a CPA), and any state S-corp fees. These run $1,500 to $3,000+ per year and are the main reason S-corp doesn't pay off at lower income levels. The calculator lets you enter your actual costs.
QBI deduction interaction. The 20% Qualified Business Income deduction under §199A applies to your net profit as a sole proprietor (reduced by the deductible half of self-employment tax and other attributable deductions), but only to the K-1 distribution as an S-corp owner (the salary is excluded from QBI). Shifting income from profit to salary can shrink your QBI deduction, which partially offsets the self-employment tax savings. This is the effect most calculators miss, and it can flip the recommendation at higher income levels.
Employer FICA deduction. The S-corp deducts the 7.65% employer half of FICA as a business expense, which reduces the K-1 ordinary income that passes through to the owner. This is a small but real income-tax-side effect that the calculator includes.
15.3%
Same rate, different base
Sole prop pays 15.3% on all net profit. S-corp pays 15.3% on salary only. The savings come from the distribution escaping payroll tax entirely, not from a lower rate.
Worked examples
How it plays out at different income levels
The same comparison can produce very different outcomes depending on profit level, salary choice, and state costs. Here are four scenarios at common income levels.
$40,000 net business income, $20,000 salary, single filer, $3,000 payroll and compliance cost. S-corp doesn't pay off yet.
- Sole prop total tax$7,891
- S-corp total tax$8,517
- Net annual benefit-$626 (sole prop wins)
$80,000 net business income, $40,000 salary, single filer, $1,200 payroll cost. S-corp starts to pull ahead.
- Sole prop total tax$16,647
- S-corp total tax$13,791
- Net annual benefit+$2,856 (S-corp wins)
$150,000 net business income, $60,000 salary, single filer, $1,200 payroll cost. S-corp savings are significant.
- Sole prop total tax$37,608
- S-corp total tax$29,913
- Net annual benefit+$7,695 (S-corp wins)
$100,000 net business income, $50,000 salary, single filer, $1,200 payroll cost, $2,300 California S-corp franchise tax ($800 min + 1.5% of $100k).
- Sole prop total tax$22,365
- S-corp total tax (incl. state)$21,447
- Net annual benefit+$918 (S-corp still wins, but less)
The form
How the result flows to your tax return
Your tax return looks very different depending on whether you stay a sole proprietor or elect S-corp status. Here's how three scenarios map to the actual lines on the forms.
Sole proprietor (LLC default)
$80k profit, single$80,000 net business income, single filer, no S-corp election. The business is reported on Schedule C and the owner pays SE tax on the full profit.
No payroll, no Form 1120-S. The owner pays the full 15.3% SE tax on 92.35% of net profit.
| Form line | What goes there | Amount |
|---|---|---|
| Schedule C, Line 31 | Net business profit | $80,000 |
| Schedule SE, Line 4a | Net SE earnings (× 92.35%) | $73,880 |
| Schedule SE, Line 12 → Schedule 2, Line 4 | SE tax (15.3%) | $11,304 |
| Schedule SE, Line 13 → Schedule 1, Line 15 | Deductible half | $5,652 |
| Form 8995/8995-A | QBI deduction (20% of QBI base, capped) | $11,650 |
| Form 1040, Line 16 | Federal income tax (after QBI + std deduction) | $5,344 |
→ Form 1040 total tax (SE + income): $16,647
S-corp election ($40k salary)
$80k profit, $40k salary$80,000 net business income, $40,000 reasonable salary, single filer. The LLC elects S-corp status via Form 2553 and pays the owner a W-2 salary.
FICA applies only to the $40,000 salary. The remaining profit passes through as K-1 distribution with no payroll tax. The S-corp files Form 1120-S separately.
| Form line | What goes there | Amount |
|---|---|---|
| Form W-2 | Reasonable salary | $40,000 |
| Form 941 (quarterly) | Employer FICA (7.65%) | $3,060 |
| Form 941 (quarterly) | Employee FICA (7.65%, withheld) | $3,060 |
| Form 1120-S, Line 12 | Employer FICA deduction (trade or business tax) | -$3,060 |
| Form 1120-S, Schedule K-1 | K-1 ordinary income ($80k − $40k − $3,060) | $36,940 |
| Form 8995/8995-A | QBI deduction (20% of K-1, salary excluded) | $7,388 |
| Form 1040, Line 16 | Federal income tax (salary + K-1 − QBI − std deduction) | $6,471 |
→ Form 1040 total tax (FICA + income) + payroll cost: $12,591 + $1,200 = $13,791
S-corp with low salary ($20k)
$80k profit, $20k salary$80,000 net business income, $20,000 reasonable salary, single filer. A low salary maximizes the distribution but raises audit risk.
Lower salary means more distribution (more SE tax savings) but the IRS may challenge whether $20,000 is reasonable for a business generating $80,000 in profit. QBI deduction is higher because more income is QBI-eligible K-1.
| Form line | What goes there | Amount |
|---|---|---|
| Form W-2 | Reasonable salary | $20,000 |
| Form 941 (quarterly) | Employer + employee FICA (15.3%) | $3,060 |
| Form 1120-S, Schedule K-1 | K-1 ordinary income ($80k − $20k − $1,530) | $58,470 |
| Form 8995/8995-A | QBI deduction (20% of K-1) | $11,694 |
| Form 1040, Line 16 | Federal income tax | $5,800 |
→ Form 1040 total tax + payroll cost: $8,860 + $1,200 = $10,060
Single-member LLCs only. This mapping covers a single-member LLC taxed as a sole proprietorship versus the same LLC electing S-corp status. Multi-member LLCs (taxed as partnerships), C-corps, and existing corporations converting to S-corp have different form flows. The calculator shows planning estimates; your actual filed forms round to whole dollars, so expect small differences.
Watch out
Common mistakes to avoid
- Setting salary too low to avoid payroll tax. The IRS can reclassify distributions as wages, plus penalties and interest. A $1 salary with large distributions is a top audit trigger.
- Forgetting payroll and compliance costs which run $1,500 to $3,000+ per year and can erase the SE tax savings at lower income levels.
- Ignoring state S-corp taxes especially in California ($800 minimum plus 1.5%), New York, Illinois, and Texas. State costs can flip the decision.
- Overlooking the QBI interaction where shifting income from profit (QBI-eligible) to salary (not QBI) can shrink your 20% deduction and offset part of the savings.
- Confusing distributions with salary they are different things. Salary is W-2 wages subject to FICA; distributions are profit passes-through not subject to payroll tax. Both are ordinary income for income tax.
- Trusting the "60/40 rule" which is not IRS guidance. The IRS uses a multi-factor test for reasonable compensation, not a fixed percentage.
When to bring in a pro. If the calculator shows S-corp saving you more than $2,000 a year, the next step is a CPA or enrolled agent confirming your reasonable salary, running your state's numbers, and checking whether your state recognizes the S-corp election. The S-corp election is a formal tax filing (Form 2553) with ongoing payroll obligations; it's not a decision to make on a calculator result alone.
Behind the answer
How I tested the LLC vs S-corp calculator
Before this calculator went live, I validated every major calculation path against 10 test cases derived from Schedule SE, Form 1120-S instructions, IRC sections, and Rev. Proc. 2025-32. Here's what that covers.
SE tax and FICA math
I tested the full SE tax formula (the 92.35% multiplier, the Social Security wage-base cap, the Medicare portion) against the existing self-employment tax engine, and the S-corp FICA calculation (employer and employee shares, Additional Medicare Tax) against the statutory rates in IRC §3101 and §3111.
QBI deduction
The QBI calculation is tested below the threshold (full 20%), at the phase-in range (wage limit phased in), and above the phase-in end (SSTB gets $0, non-SSTB gets wage-limited). The 2026 thresholds ($201,750 single, $403,500 MFJ) are confirmed against Rev. Proc. 2025-32.
Edge cases
Salary of $0 (audit warning), salary equal to income (no distribution), salary above income (K-1 loss), high income above the wage base, and Additional Medicare Tax threshold crossing are all tested with expected outputs.
Break-even and validation
The break-even binary search is tested to converge within $50 of the actual crossing point. Field validation catches negative income, invalid filing status, and negative cost inputs before the calculation runs.
Every test case traces back to the IRC section, form line, or SSA figure it came from. You can download all 10 test cases as JSON and check any scenario against the cited source. If you spot a result that doesn't match, tell me and I'll fix it.
FAQ
Questions people ask
How much do you save with an S-corp vs an LLC?
You save roughly 15.3% of the profit you take as distributions instead of salary, minus your payroll costs and any Qualified Business Income deduction you give up by shifting income from the distribution to the salary column. The exact dollar amount depends on your net profit, your reasonable salary, your state, and your payroll service fees, which the calculator above computes side by side.
When is an S-corp worth it?
An S-corp typically starts saving you money once your net business profit clears roughly $40,000 to $60,000 for the year, because below that level the self-employment tax you avoid is smaller than the payroll processing and compliance costs you take on. The exact break-even point depends on your reasonable salary, your state's unemployment tax, and your payroll service fees; the calculator shows your specific crossover.
What is a reasonable salary for an S-corp owner?
A reasonable salary is what you would pay a non-owner employee to perform the same services, based on the IRS multi-factor test (duties, time, qualifications, comparable salaries, and other factors). A common starting point is 40 to 60 percent of net profit, validated against market wage data for your role and location. Setting it artificially low is the primary S-corp audit trigger.
Can a single-member LLC elect S-corp status?
Yes. A single-member LLC can elect S-corp tax treatment by filing Form 2553 with the IRS. The LLC keeps its state-law legal structure (liability protection, operating agreement) but is taxed federally as an S-corp. After the election, the owner must pay themselves a reasonable W-2 salary, run payroll, and file Form 1120-S annually.
How much does an S-corp cost per year?
Expect $1,500 to $3,000 per year in added costs: a payroll service ($500 to $1,200), a separate Form 1120-S tax return ($500 to $2,000 from a CPA), and any state S-corp fees ($0 to $800, with California charging a minimum $800 franchise tax). The calculator lets you adjust this figure so the net savings reflect your actual overhead.
Does the S-corp election affect my QBI deduction?
Yes. Under Section 199A, the 20% QBI deduction for an S-corp is based on the distribution portion only, not the W-2 salary. A sole proprietor's QBI is based on full net business income (minus the SE tax deduction). This means electing S-corp status can shrink your QBI deduction, which partially offsets the SE tax savings.
What happens if my S-corp salary is too low?
The IRS can reclassify your distributions as wages and assess back payroll taxes, penalties, and interest. A salary that is unreasonably low relative to distributions is the single most common S-corp audit issue. Document your salary rationale with comparable wage data so you can defend the figure if examined.
Is an LLC or S-corp better for taxes?
It depends on your profit level. Below the break-even income (roughly $40,000 to $60,000 above a reasonable salary), the LLC default is cheaper because you avoid payroll and Form 1120-S costs. Above the break-even, the S-corp election typically saves $2,000 to $10,000 or more per year by reducing the self-employment tax base. Run the calculator with your actual numbers to see which side wins.
Is the 60/40 rule for S-corp salary a real IRS rule?
No, the "60/40 rule" (pay yourself 60% as salary, take 40% as distributions) is not IRS guidance and the IRS has explicitly rejected percentage-based approaches to reasonable compensation. The IRS uses a multi-factor test: your training and experience, the duties you perform, the time you devote, what comparable businesses pay for similar services, and your distribution history. Use market wage data for your role and industry to set a defensible salary, not a fixed percentage.
Does S-corp status affect my retirement contributions?
Yes, and it can matter more than the tax savings if you're a high saver. Under an LLC, solo 401(k) employer contributions are based on your net self-employment income. Under an S-corp, employer contributions are capped at 25% of your W-2 salary. A low S-corp salary that saves on payroll tax can also cap how much you can put away for retirement. This calculator doesn't model retirement contributions; ask a CPA if retirement planning is a priority.
What this calculator doesn't model (and why)
State income taxes and franchise fees
The calculator is federal only. State S-corp franchise taxes, entity-level taxes, and PTET elections are not modeled. California ($800 minimum plus 1.5%), New York, Illinois, and Texas have material S-corp costs. Enter your state's annual S-corp cost in the Advanced panel for a more accurate comparison.
Multi-member LLCs
This calculator assumes a single owner. Multi-member LLCs default to partnership taxation (Form 1065), which uses guaranteed payments and different self-employment tax rules. The comparison would be different for a partnership.
S-corp loss limitations
Stock basis, debt basis, at-risk, and passive activity loss rules can limit how S-corp losses pass through to the owner. This calculator assumes the business is profitable; if your S-corp is losing money, see a CPA.
Built-in gains tax
Applies to C-corps converting to S-corp status, not to a single-member LLC electing S-corp directly. If your business was ever a C-corp, different rules apply and this calculator does not cover them.
Retirement contribution differences
S-corp salary caps solo 401(k) employer contributions at 25% of W-2 wages; LLC default bases them on net SE income. A low S-corp salary can reduce how much you can save for retirement. See the notecard in the calculator for details.
Net Investment Income Tax
The 3.8% NIIT generally excludes income from an active trade or business where the owner materially participates, so a working owner's S-corp distribution is often not subject to NIIT. This is a facts-and-circumstances determination not modeled here.
Health insurance treatment
Under an LLC, self-employed health insurance is an above-the-line deduction. Under an S-corp, it's typically a W-2 add-back and a deduction on the owner's personal return. The mechanics differ but the tax result is often similar; not modeled here.
Multiple shareholders
This calculator assumes one shareholder owning 100% of a single class of stock. Multiple shareholders, preferred shares, or non-pro-rata distributions change the analysis.
QBI above the threshold
This calculator uses a simplified one-business QBI model. Above the income threshold, a full Form 8995-A calculation can differ, especially with multiple businesses, significant depreciable property, or complex SSTB allocations.
Updates
What's changed
- Built the calculator with 2026 federal tax brackets, the Social Security wage base ($184,500), and the QBI deduction interaction. Includes state S-corp cost and other taxable income inputs based on what users said was missing from other calculators.
Sources
Where the numbers come from
- IRC §1361: S corporation eligibility (small business corporation definition)
- IRC §1362: Election of S corporation status (Form 2553)
- IRC §3101: Employee share of FICA (6.2% Social Security + 1.45% Medicare)
- IRC §3111: Employer share of FICA (6.2% Social Security + 1.45% Medicare)
- IRC §1401: Self-employment tax (SECA rates)
- IRC §164(f): Deduction for one-half of self-employment tax
- IRC §199A: Qualified Business Income deduction (20% QBI, SSTB, W-2 wage limit)
- Treas. Reg. 301.7701-3: Entity classification (eligible entity, check-the-box)
- Instructions for Form 2553: Election by a Small Business Corporation
- Instructions for Form 1120-S: U.S. Income Tax Return for an S Corporation
- IRS: S corporation compensation and medical insurance issues (reasonable compensation)
- IRS: S corporation employees, shareholders and corporate officers
- Instructions for Form 8995-A: Qualified Business Income Deduction
- IRS Topic 560: Additional Medicare Tax
- Rev. Proc. 2025-32: 2026 inflation-adjusted items (brackets, standard deduction, QBI thresholds)
- IRS Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
- Schedule SE (Form 1040): Self-employment tax
- SSA Cost-of-Living Increase for 2026, 90 Fed. Reg. 49047 (Nov. 3, 2025)