LLC vs S-Corp Calculator: How Much Tax Do You Save by Electing S-Corp?

If you run a profitable business as a sole proprietor or single-member LLC, you're paying self-employment tax on every dollar of profit. An S-Corp election lets you split that profit into a salary and distributions, reducing the portion subject to FICA taxes. The savings are real, but there's a right time to make this move.

The Core Difference

Single-Member LLC (default / sole proprietor): All net profit is subject to self-employment tax at 15.3% (up to the Social Security wage base of $176,100 for 2026, then 2.9% for Medicare above that).

S-Corp: You pay yourself a "reasonable salary." FICA taxes (15.3%) apply only to the salary. Remaining profit passes through as a distribution, subject only to income tax, not self-employment tax.

This is legal tax avoidance, not evasion. The IRS requires the salary to be "reasonable" for your industry and role. If you underpay yourself artificially, the IRS can reclassify distributions as wages.

Real Example: $150,000 Net Profit

As a Single-Member LLC

| Item | Amount | |------|--------| | Net profit | $150,000 | | SE tax (15.3% up to $176,100) | $22,950 | | SE deduction (50% of SE tax) | -$11,475 | | Adjusted profit for income tax | $138,525 | | Federal income tax (say 22% bracket) | ~$20,000 | | Total tax burden | ~$42,950 |

As an S-Corp

Reasonable salary for this example: $85,000 (varies widely by industry; must be defensible)

| Item | Amount | |------|--------| | Reasonable salary | $85,000 | | FICA on salary (employee + employer = 15.3%) | $13,005 | | Distribution (remaining profit) | $65,000 | | FICA on distribution | $0 | | Federal income tax on total $150,000 profit | ~$20,000 | | Payroll processing costs (est. $500-$1,500/year) | $1,000 | | Total tax burden | ~$34,005 |

Tax savings: $42,950 - $34,005 = ~$8,945 per year

The IRS allows the 50% SE deduction for LLC filers, which reduces the true SE tax cost somewhat. But the S-Corp structure still wins at $150,000 by nearly $9,000.

Tax Comparison by Income Level

Using a 50% salary / 50% distribution split (varies by situation) and 2026 tax rates:

| Net Profit | LLC SE Tax | S-Corp FICA | Annual Savings | Net Savings After S-Corp Costs | |-----------|-----------|------------|---------------|-------------------------------| | $40,000 | $5,652 | $3,060 | $2,592 | ~$1,300 (barely worth it) | | $60,000 | $8,478 | $4,590 | $3,888 | ~$2,600 | | $80,000 | $11,304 | $6,120 | $5,184 | ~$3,900 | | $100,000 | $14,130 | $7,650 | $6,480 | ~$5,000 | | $150,000 | $21,195 | $11,475 | $9,720 | ~$8,200 | | $200,000 | $27,578 | $15,300 | $12,278 | ~$10,700 | | $300,000 | $29,450 | $22,950 | $6,500 | ~$5,000 |

Note: At very high incomes ($300K+), the SE tax advantage diminishes because much of LLC profit would be above the $176,100 Social Security wage base and taxed at only 2.9% Medicare anyway. The savings narrow but don't disappear.

When S-Corp Status Is Worth It

The general rule of thumb: S-Corp election makes financial sense at $40,000 to $50,000 or more in net profit after accounting for the costs and administrative burden.

S-Corp costs and requirements:

• Payroll setup and administration: $500-$2,000/year (most use a payroll service like Gusto or ADP)
• S-Corp tax return (Form 1120-S): $500-$2,000/year from a CPA vs free Schedule C for LLC
• Separate bank account and basic bookkeeping (same as LLC should already be doing)
• State franchise fees: varies by state, $800/year minimum in California for example

Total additional annual cost: $2,000-$5,000 depending on state and CPA fees.

If your SE tax savings are $3,000 but your additional costs are $4,000, the S-Corp makes you worse off. At $5,000+ in net savings, the economics work.

How to Elect S-Corp Status

An LLC can elect S-Corp taxation by filing IRS Form 2553. Key rules:

• Must be a domestic corporation or eligible LLC
• Can have no more than 100 shareholders
• All shareholders must be US citizens or residents
• Only one class of stock allowed

The election can be made at any point during the tax year or within 2 months and 15 days of the start of the year for which it should be effective.

You can also form a corporation and elect S-Corp treatment, but most small business owners start with an LLC and add the tax election.

What "Reasonable Salary" Actually Means

This is the IRS's main audit target with S-Corps. Courts and the IRS consider:

• What similar businesses pay for the same work
• What the business would have to pay a third party to do the owner's job
• The ratio of salary to distribution (a 10% salary / 90% distribution on $500K profit will attract scrutiny)

Common guidance: salary should be 40-60% of net profit at typical small business income levels. Your CPA can help you determine a defensible number.

Run the Numbers

Use the Self-Employment Tax Calculator to calculate your current SE tax burden and estimate the savings from an S-Corp election at your income level.