Phase 1 · Core Sovereign Layer

LLC vs S-Corp Tax Calculator

Past a certain income, an S-Corp election quietly saves thousands in self-employment tax — but below it, the overhead eats the benefit. Find your exact inflection point.

When should an LLC elect S-Corp taxation?

An LLC should elect S-Corp taxation once the self-employment tax it saves exceeds the cost of running payroll and filing a separate return. An LLC pays 15.3% self-employment tax on all net profit; an S-Corp pays it only on a reasonable salary, so profit taken as distributions escapes it. The break-even commonly lands near $60,000–$90,000 of net profit.

The 15.3% is 12.4% Social Security — capped at the $184,500 wage base for 2026 — plus 2.9% Medicare with no cap.
Income tax is identical either way (both are pass-through), so the entire saving is payroll tax on the distribution portion.
The IRS requires a defensible reasonable salary before distributions; a common benchmark is 40–60% of profit for the owner's role.
Against the saving sit real costs: payroll service, a separate 1120-S return, extra bookkeeping and state fees.

Under the hood

The math, fully exposed

Income tax is identical for both (pass-through), so it cancels — we compare only payroll tax plus overhead (2026 Social Security wage cap $184,500):

LLC self-employment tax = 15.3% × (net profit × 92.35%), SS portion capped

S-Corp payroll tax = 15.3% on salary only, SS portion capped

Distributions = net profit − salary (no payroll tax)

Tax saved = LLC SE tax − S-Corp payroll tax

Net benefit = tax saved − S-Corp overhead

The lever is the salary split: only the salary is taxed for FICA, so a lower (but still reasonable) salary means more untaxed distributions — and more saving.
Overhead sets the floor: running payroll and a second tax return costs real money. Below the break-even profit, that overhead is larger than the tax saved.
Estimate, not advice: this ignores state income tax differences and the QBI deduction interaction. Confirm your reasonable salary and numbers with a CPA before electing.

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Answers

Frequently asked questions

How does an S-Corp save on taxes versus an LLC?

A single-member LLC pays self-employment tax (15.3%) on all net business profit. An S-Corp splits profit into a reasonable salary (subject to payroll/FICA tax) and distributions (not subject to it). You only pay the 15.3% on the salary, so every dollar taken as a distribution instead of salary avoids that tax. Income tax is the same either way — the savings are purely on payroll tax.

When is it worth switching to an S-Corp?

When the self-employment tax you'd save on distributions exceeds the added cost of running payroll, filing a separate return and the extra bookkeeping. That break-even commonly lands somewhere around $60,000–$90,000 of net profit, but it depends entirely on your reasonable salary and admin costs — this calculator finds your exact number.

What is a "reasonable salary" and why does it matter?

The IRS requires S-Corp owners to pay themselves a reasonable wage for the work they do before taking distributions. Set it too low to dodge payroll tax and you invite an audit and penalties; set it too high and you hand back the savings. A common benchmark is roughly 40–60% of profit, but it should reflect what you'd pay someone to do your job.

What are the downsides of an S-Corp?

Real ones: you must run formal payroll, file a separate 1120-S return, keep cleaner books, and often pay state franchise fees and a payroll service. That's the annual overhead this calculator subtracts. Below the break-even income, those costs exceed the tax savings and a plain LLC is simpler and cheaper.

Open the full LLC vs S-Corp calculator on EmpireCalc →