LLC vs S-Corp Tax Calculator — Compare Self-Employment Tax Savings (2026)

Quick summary

The LLC vs S-Corp Tax Comparison Calculator answers the single most common entity-choice question for US small business owners: does S-corp election save me money on self-employment tax?

It models BOTH structures side-by-side at your actual numbers: LLC/Sole Prop pays full 15.3% SECA on net business profit; S-Corp pays FICA only on a reasonable salary, with the rest taken as distributions exempt from SE tax. Both qualify for the 20% QBI deduction. The comparison nets out the S-corp's payroll overhead ($1,500-$3,500/yr for Gusto/ADP + Form 1120-S filing).

Generally S-corp wins above ~$50,000 net profit. But your reasonable salary must satisfy IRS scrutiny — too low triggers reclassification of distributions to wages with back-FICA + penalties.

Annual net business profit

S-Corp owner reasonable salary

Industry comparable; typically 40-60% of net profit

Filing status

Other ordinary income

State income tax rate

Annual S-Corp payroll/accounting overhead

Gusto/ADP $40-100/mo + Form 1120-S CPA fee $800-2,000

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How to use

1 Enter your annual net business profit (after all Schedule C expenses).
2 Enter your proposed S-corp reasonable salary. Industry rule of thumb: 40-60% of net profit, or what a similar W-2 employee would earn for your role. Use BLS Occupational Employment Statistics.
3 Enter filing status, other ordinary income (W-2 from spouse, investment), and state income tax rate.
4 Enter S-corp payroll overhead (Gusto/ADP service ~$600-$1,500/yr + tax preparer for 1120-S ~$800-$2,500). Default $2,500 is realistic mid-size.
5 Click Calculate to see LLC tax, S-corp tax, side-by-side comparison, and the recommended structure with annual savings.

2026 LLC vs S-Corp Tax Mechanics

Component	LLC / Sole Prop	S-Corp
Self-Employment / FICA Tax	15.3% on full net profit (92.35%)	15.3% on reasonable salary ONLY
Distributions to Owner	N/A — all profit is owner's	NO SE tax on K-1 distributions
Income Tax	Pass-through to 1040 (Schedule C)	Pass-through K-1 + W-2 (Form 1120-S)
QBI 20% Deduction	Available (§199A)	Available (§199A)
Payroll Overhead	$0	$1,500-$3,500/yr
Tax Return Cost	$200-$500	$800-$2,500 (1120-S)
Owner Tax Filings	Schedule C on Form 1040	Schedule E (K-1) + W-2 box 1

When Does S-Corp Win?

Net Profit	S-Corp Recommended?	Approx Annual Savings
Under $40,000	NO — overhead exceeds savings	Negative
$40,000-$60,000	Maybe — break-even zone	$500-$1,500
$60,000-$100,000	YES	$2,000-$5,000
$100,000-$200,000	YES (strong)	$5,000-$10,000
$200,000-$500,000	YES (very strong)	$10,000-$15,000+
Above $500,000	YES (massive)	$15,000-$20,000+ (capped by SS wage base)

Reasonable Salary — The IRS Test

The IRS aggressively challenges S-corp owners who pay themselves too little. Defend your salary with:

Factor	Documentation
Industry market rate	BLS Occupational Employment Statistics (oes.gov), Glassdoor, Salary.com
Hours worked	Time tracking or written board minutes
Job duties	Comparable W-2 role descriptions
Specialized skills/credentials	Education, licenses, experience years
Geographic location	Adjust for cost of labor in your area
Company size and complexity	Revenue, employees, decision authority

Industry rules of thumb: 40-60% of total profit as salary works for most personal services (consultant, freelancer, doctor, lawyer). Below 40% raises audit risk. Above 60% wastes SE tax savings. Use a third-party service like RC Reports for documented IRS-defensible salary studies (~$500-$1,000).

How to Elect S-Corp Status

Step	Detail
1. Verify eligibility	≤100 shareholders, US individuals/certain trusts only, single class of stock
2. File Form 2553	Within 75 days of formation OR by March 15 of the tax year
3. Set up payroll	Gusto, ADP, Paychex — automate W-2 + quarterly 941
4. Pay quarterly estimates	Form 1040-ES on K-1 distributions; Form 941 on payroll
5. File Form 1120-S annually	S-corp tax return + K-1 to each shareholder
6. Issue W-2	You become BOTH an employee and a shareholder

Common S-Corp Pitfalls

(1) Underpaying salary — IRS reclassifies distributions to wages, hits with back-FICA + penalties + interest. (2) Forgetting payroll filings — quarterly Form 941, annual 940, W-2/W-3, 941 Schedule B. (3) Mixing personal and business expenses — pierces corporate veil, defeats asset protection. (4) Missing the March 15 election deadline — wait until next year unless you qualify for late election relief (Rev. Proc. 2013-30). (5) State considerations — CA franchise tax $800/yr minimum + 1.5% S-corp tax; NY state minimum tax $25-$4,500.

FAQ

Q Should I form an LLC or S-corp in 2026?

For most small businesses with profits under $40K, default LLC (Schedule C). Once profit exceeds ~$50K, S-corp election typically saves $2K-$10K/yr in self-employment tax. Above $200K, savings reach $10K-$15K+. The break-even point depends on your reasonable salary and state-level overhead.

Q How much can I save with an S-corp election?

For a $100K profit business, typical savings: ~$5,500/yr. For $200K profit: ~$10,000/yr. For $400K profit: ~$15,000/yr (capped because SS wage base is $184,500 in 2026). Net of S-corp's extra payroll and tax-prep overhead ($2,000-$3,500/yr).

Q What is "reasonable salary" for an S-corp?

The IRS requires you pay yourself a market-rate W-2 salary for your role before taking distributions. Industry rule: 40-60% of total profit. Documentation: BLS Occupational Employment Statistics, Glassdoor/Salary.com, comparable W-2 jobs. Too low triggers audit risk and reclassification penalty.

Q How do I elect S-corp status?

File IRS Form 2553 within 75 days of LLC formation OR by March 15 of the tax year you want it effective. Late election relief available under Rev. Proc. 2013-30 if reasonable cause. Once elected, set up payroll (Gusto/ADP), file Form 1120-S annually, issue K-1 to yourself.

Q Can a single-member LLC be an S-corp?

Yes — file Form 2553 to elect S-corp tax status. The LLC remains an LLC at the state level (no entity change), but for federal taxes it's an S-corp. Combines limited liability of LLC with SE tax savings of S-corp. Most flexible structure.

Q Does an S-corp save state tax too?

Mixed — depends on state. CA charges $800/yr franchise tax + 1.5% on S-corp net income. NY has $25-$4,500 minimum tax. TX, FL, NV — no state corporate income tax. Calculate state cost separately before electing. Some high-tax states (CA, NY) make S-corp slightly less attractive.

Q Do S-corp distributions still qualify for QBI?

Yes — both salary AND distributions qualify for the 20% QBI deduction (§199A). However, salary is also subject to FICA, while distributions aren't. The optimal split: enough salary to satisfy IRS reasonable-salary test, rest as distributions. QBI applies to the K-1 portion.

Q What's the biggest mistake S-corp owners make?

Underpaying themselves — taking $0 salary and 100% distributions to avoid all FICA. The IRS catches this and reclassifies distributions as wages with back-FICA + 25-100% accuracy penalty + 7-8% interest. Always pay reasonable salary BEFORE taking distributions, even in startup years.