S Corp Tax Calculator
Should your LLC elect S corp status? Set a salary, count the extra costs, and see whether splitting profit into wages and distributions actually leaves you more.
| LLC / sole prop | S corp | |
| Social Security + MedicareSE tax vs payroll tax on salary | $16,955 | $9,180 |
| QBI deduction | $19,084 | $10,682 |
| Federal income tax | $11,506 | $13,770 |
| Extra costs | $0 | $2,000 |
| Total | $28,462 | $24,950 |
ELECTION PAYS OFF
Why salary is the lever
Every dollar moved from salary to distributions skips 15.3% payroll tax, but also loses a little QBI and wage-limit benefit. Lower salaries save more on paper; the IRS "reasonable compensation" rule is what stops you going to zero. Savings at each salary level for $120,000 of profit:
What this calculator assumes
One owner, taxed as an S corporation via Form 2553, paying a W-2 salary through payroll. The company pays the employer half of FICA (deductible to the business) and you pay the employee half through withholding; the remaining profit flows to you on a Schedule K-1 as a distribution free of payroll tax. Health insurance, retirement contributions and state-specific entity taxes (such as California's 1.5% S corp franchise tax, minimum $800) are not modelled; add them to extra costs. Rules: IRS "S Corporation Employees, Shareholders and Corporate Officers" and the Form 1120-S instructions.
Questions freelancers ask
How much can an S corp save on self-employment tax?
An S corporation owner pays Social Security and Medicare only on the salary the company pays them, not on distributions. If your business nets $120,000 and you pay yourself a reasonable $60,000 salary, roughly $60,000 escapes the 15.3% payroll tax, which can save several thousand dollars a year, minus the cost of running payroll and a separate corporate return.
At what income does an S corp make sense?
Many advisers start the conversation at roughly $50,000–$80,000 of net profit, because below that the savings rarely beat the extra costs: payroll service, Form 1120-S preparation, state fees and in some states an extra entity tax. Run your own numbers above, including your real extra costs and a defensible salary.
What is a reasonable salary for an S corp owner?
The IRS requires S corporation shareholder-employees to pay themselves reasonable compensation for the services they perform before taking distributions, based on what similar businesses would pay for similar work. Paying an unrealistically low salary to dodge payroll tax is a well-known audit trigger.
Is an LLC or S corp better for taxes?
A single-member LLC is taxed like a sole proprietorship by default: all profit is subject to self-employment tax. An LLC can elect to be taxed as an S corp (Form 2553), which is what creates the salary-plus-distribution split. So the real comparison is default LLC versus LLC with an S-corp election, which is what this calculator shows.
Does an S corp affect the QBI deduction?
Yes. Your salary is not qualified business income, so the QBI deduction applies only to the profit left after wages. Above the income threshold, the W-2 wages the S corp pays you can actually help, because the wage limit is based on them.