LLC vs. S-Corp Tax Calculator
See if electing S-Corporation tax status actually lowers your tax bill or wastes money on accounting overhead, payroll software, and corporate filing fees.
An S-Corp is not free to run. Enter your expected annual bookkeeping, payroll, and state compliance costs to calculate your true net savings.
Enter your annual business net profit and target W-2 salary above to see if an S-Corporation saves you money or wastes cash on extra accounting overhead.
How to Use This Calculator
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1
Enter Your Annual Business Net Profit
Input your projected or previous year's business net profit (gross revenues minus business operating expenses before owner draws or taxes).
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2
Determine Your Reasonable W-2 Salary
Enter the fair market wage you would pay someone else to do your daily role, or use our quick 40%–60% percentage buttons as a starting estimate.
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3
Customize S-Corp Compliance Overhead
Review the compliance expense accordion to adjust your real-world costs for payroll software (Gusto/QuickBooks), CPA Form 1120-S filings, and state franchise fees.
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4
Check the Net Savings & Break-Even Verdict
Review the primary callout banner to see whether the S-Corp actually keeps more cash in your bank or if the extra accounting overhead costs more than it saves.
The Formula
The financial difference between a default LLC (disregarded entity / Schedule C) and an S-Corporation comes down to how the IRS levies the 15.3% self-employment (FICA) tax:
Taxable SE Base = Net Profit × 92.35% (0.9235)
Social Security Tax = min(SE Base, $184,500) × 12.4%
Medicare Tax = (SE Base × 2.9%) + Additional Medicare (0.9% over $200k)
Total LLC Cost = Social Security + Medicare
Method 2: S-Corporation Election (Form 2553)
Shareholder Distribution = Net Profit − Reasonable W-2 Salary
S-Corp FICA Tax = (Salary × 12.4% up to cap) + (Salary × 2.9%)
Total S-Corp Cost = S-Corp FICA + Annual Admin Overhead (Payroll + CPA + State Fees)
Net S-Corp Cash Savings = Total LLC Cost − Total S-Corp Cost
Here is what each parameter means in practice:
- Net Profit Total Business Bottom Line: Your net revenue after ordinary operating expenses (supplies, software, advertising, rent) but before any owner distributions or income taxes.
- Reasonable Salary Owner W-2 Wage: The mandatory fair-market salary paid to the owner-operator. Only this portion pays the 15.3% Social Security and Medicare taxes.
- Distribution Shareholder Dividend: The remaining profit taken as a profit distribution. Under IRS S-Corp rules, distributions are 100% exempt from self-employment taxes.
- Admin Overhead Compliance Costs: The real-world friction of maintaining an S-Corp, including monthly payroll processing, separate corporate tax filing (Form 1120-S), and state annual franchise taxes.
- Social Security Cap Annual Wage Ceiling: The statutory cap ($184,500 for 2026; $176,100 for 2025) above which the 12.4% Social Security tax ceases. Medicare tax (2.9%) continues on all wages without limit.
Example
Let's walk through the exact $200,000 net profit scenario that small business owners search most frequently on Google. Having worked alongside self-employed consultants and small agency founders, I've seen plenty of people blindly pay $2,500 to form an S-Corp without checking the math first. Here is how the numbers actually compare for a single filer:
Now, let's compare both business structures side-by-side:
- Default LLC Calculation: Net profit of $200,000 gives a taxable self-employment base of
$200,000 × 0.9235 = $184,700.00. Social Security tax at 12.4% (capped at $184,500) is $22,878.00. Medicare tax at 2.9% on the full $184,700 is $5,356.30. Total self-employment tax is $28,234.30. - S-Corporation Calculation: FICA tax is paid only on the $80,000 salary:
$80,000 × 12.4% = $9,920.00for Social Security and$80,000 × 2.9% = $2,320.00for Medicare, totaling $12,240.00 in payroll taxes. The remaining $120,000 distribution owes $0.00 in self-employment tax. - Factor in Overhead: Adding $2,000 in annual compliance fees ($600 payroll + $1,200 CPA + $200 state) gives a total S-Corp cost of $14,240.00.
- The Net Verdict: The S-Corp saves Jordan a massive $13,994.30 in cold, hard cash every single year ($28,234.30 vs $14,240.00). At this profit level, electing S-Corp status offers a significant and clear tax advantage.
Notice how Jordan saves nearly $14,000 even after paying an accountant and payroll provider. That's why high-earning service providers frequently elect S-Corp taxation once profits exceed $100k.
Frequently Asked Questions
How much money do you need to make for an S-Corp to be worth it?
An S-Corp election typically becomes financially worthwhile when your business net profit reaches $70,000 to $80,000 per year. Running an S-Corp requires additional administrative expenses, such as payroll processing software ($500 to $700/year), a separate corporate tax return Form 1120-S ($1,000 to $1,500/year), and state annual franchise taxes. Below $70,000 in net profit, these compliance costs usually wipe out any self-employment tax savings.
Which pays less in taxes: LLC or S-Corp?
For net profits above $75,000, an S-Corp almost always pays less total tax than a default LLC. In an LLC, 100% of your business net profit is subject to the 15.3% self-employment (FICA) tax. In an S-Corp, only your W-2 "reasonable salary" pays the 15.3% payroll tax, while the remaining profits are distributed as dividends that are 100% exempt from self-employment taxes.
What is IRS "Reasonable Compensation" for an S-Corp owner?
The IRS mandates that shareholder-employees of an S-Corp must pay themselves a "reasonable salary" comparable to what an independent company would pay for similar services in their industry. You cannot pay yourself a $0 salary to completely avoid payroll taxes. Most CPAs and tax courts recommend setting your salary between 40% and 60% of total business profit, supported by documented wage research.
What are the biggest downsides and extra costs of an S-Corp?
The main drawbacks of an S-Corp are increased paperwork and ongoing administrative costs. You must run formal payroll with payroll tax withholdings (Form 941/940), file a separate corporate federal tax return (Form 1120-S) with Schedule K-1s, and pay state-level franchise fees (such as California's $800 minimum annual franchise tax). If your salary is set unrealistically low, you also face higher IRS audit scrutiny.
Can a single-member LLC elect S-Corp tax status without forming a corporation?
Yes. You do not need to dissolve your LLC or incorporate a new entity. A single-member or multi-member LLC can remain a legal LLC under state law and simply elect to be taxed as an S-Corporation for federal tax purposes by filing IRS Form 2553 within 75 days of the start of the tax year.