LLC vs S-Corp Calculator 2026

LLC vs S-Corp: How Taxes Differ

A default single-member LLC is taxed as a sole proprietorship: every dollar of net profit is subject to self-employment tax (15.3 percent, combining Social Security 12.4 percent up to the 2026 wage base of $176,100 and Medicare 2.9 percent with no cap). When your LLC elects S-Corp status on Form 2553, you become an employee of your own business and must pay yourself a reasonable salary subject to payroll tax, but the remaining profit flows through as a distribution that is not subject to self-employment or payroll tax. That distribution avoids the 15.3 percent SE tax, which is where the savings come from.

Federal income tax is paid on both the salary and the distribution — the S-Corp election only affects self-employment tax. You still owe ordinary income tax on all of it.

When S-Corp Makes Sense

S-Corp status starts saving money once net profit consistently exceeds roughly $50,000 to $60,000 per year. Below that, the administrative cost — running payroll, filing a separate 1120-S return, paying state franchise fees — often exceeds the self-employment tax savings. Most tax professionals suggest $70,000 to $80,000 net profit as the breakeven. Above $150,000, the savings are typically several thousand dollars per year and clearly worth it.

This calculator includes an annual S-Corp admin cost field so you can see whether the net savings exceed the overhead at your specific income level. It also accounts for the Qualified Business Income (QBI) deduction under Section 199A, which provides a 20 percent deduction on pass-through business income subject to phaseouts at higher incomes.

Reasonable Salary Requirement

The IRS requires S-Corp owner-employees to pay themselves a reasonable salary that reflects market rates for the work performed. Paying yourself $10,000 in salary and taking $140,000 in distributions on a $150,000 profit is an audit red flag. Most CPAs use industry salary surveys (Glassdoor, BLS) and suggest salary be 30 to 60 percent of net profit depending on role and geography. The higher your salary, the less SE-tax savings, so there is a balance between IRS defensibility and tax efficiency.

Note: this calculator's output is directional. Work with a CPA to set a defensible reasonable salary and confirm your state's specific rules. Some states (California, New York) impose additional S-Corp franchise taxes not modeled here.

Beyond Taxes: Operational Trade-Offs

S-Corps require real payroll: W-2 issuance, quarterly 941 filings, state unemployment insurance, and strict recordkeeping. Compared to the simplicity of a single-member LLC (one Schedule C), S-Corps add 10-20 hours of annual admin and $800 to $3,000 in payroll/tax-prep costs. They also limit you to 100 shareholders, one class of stock, and US residents only — restrictions that matter if you plan to raise VC money. For solo consultants, developers, and small service firms, the trade-off is usually worth it. Last updated: April 2026, uses 2026 Social Security wage base ($176,100) and federal tax brackets.