LLC vs S-Corp Tax Savings Calculator
Compare your tax bill as a default LLC versus S-Corp election. See exactly how much you could save in self-employment taxes and whether S-Corp is worth the extra costs.
| Default LLC | S-Corp Election | |
|---|---|---|
| Net Business Income | — | — |
| Salary / SE Income | — | — |
| Distributions (after payroll tax and costs) | N/A | — |
| Self-Employment / Payroll Tax | — | — |
| Deduction (half of SE tax / employer payroll tax) | — | — |
| Estimated Income Tax | — | — |
| Additional S-Corp Costs | $0 | — |
| Total Tax + Costs | — | — |
Annual Savings with S-Corp
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Break-Even Point
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Recommendation
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This calculator provides estimates for educational purposes only and uses 2026 federal tax brackets for a single filer with no other income. Both columns include Additional Medicare Tax and the 2026 Social Security wage base. The S-Corp column assumes the owner is the only employee, employer payroll tax and FUTA (0.6% of the first $7,000 of wages) are paid by the business, and your additional costs are deductible. No SE tax is applied when net earnings are under $400. It does not account for state taxes, the QBI deduction, itemized deductions, or other credits. Consult a CPA or tax professional before making an S-Corp election.
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LLC vs S-Corp: Understanding the Tax Difference
When you operate as a single-member LLC, the IRS treats your business as a sole proprietorship for tax purposes. Self-employment tax is 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of your net earnings. The 12.4% Social Security part applies only up to the $184,500 base for 2026, and Medicare is 2.9% above it. An Additional Medicare Tax of 0.9% applies over the threshold ($200,000 for a single filer). That is on top of regular income tax. S-Corp salary is subject to payroll tax with the same Social Security cap.
By filing Form 2553 to elect S-Corp taxation, you split your business income into two buckets: a reasonable salary (subject to payroll taxes) and distributions (subject to income tax only, no payroll or SE tax). The savings come from the distributions portion escaping the 15.3% self-employment tax.
When S-Corp Election Makes Financial Sense
S-Corp election is not free. You must run payroll, file a separate corporate return (Form 1120-S), and comply with stricter recordkeeping requirements. These costs typically run $1,000 to $3,000 per year. For most business owners, the math only works in your favor once profit is high enough for the payroll tax you avoid on distributions to exceed those costs. The break-even shown in the calculator uses your own salary ratio and cost figures.
Setting Your Reasonable Salary
The IRS expects reasonable compensation for the services you provide, based on what comparable businesses pay for similar services. Factors include your duties, training and experience, and the time you devote to the business. There is no fixed percentage of profit. See the IRS guidance on S corporation compensation. Paying yourself too little invites an audit and potential reclassification of distributions as wages, which wipes out the tax benefit and adds penalties.
The Bottom Line
The LLC vs S-Corp decision is purely a tax optimization play. Your legal protections stay the same either way. Use this calculator to see whether the numbers work for your situation, then talk to a qualified CPA before filing Form 2553. The right structure can save thousands per year, but the wrong timing or salary level can cost you more than you save.
Frequently Asked Questions
When does electing S-Corp status make sense?
S-Corp election makes sense when the self-employment tax you save on distributions is larger than the extra costs of payroll processing, a separate tax filing, and compliance. The break-even depends on your profit, your salary, and those costs, so use the calculator with your own numbers.
What is a "reasonable salary" for an S-Corp owner?
The IRS expects S-Corp owners who perform services to pay themselves reasonable compensation before taking distributions. It is based on the services you provide and what comparable businesses pay for similar services. There is no fixed percentage of profit. Setting it too low is a red flag for IRS audits.
What are the additional costs of S-Corp election?
S-Corp owners must run payroll (typically $500-$1,500/year for a payroll service), file a separate corporate tax return on Form 1120-S ($500-$1,500/year if using a CPA), and may face state-level franchise taxes or fees. These costs eat into your SE tax savings.
Can I switch from LLC to S-Corp mid-year?
Yes, but timing matters. You can elect S-Corp status by filing Form 2553 no more than 2 months and 15 days after the start of the tax year you want the election to take effect. Late elections are sometimes accepted with reasonable cause. For a January 1 effective date, that deadline is March 15.
How are S-Corp distributions taxed?
S-Corp distributions (the profit you take beyond your salary) are not subject to self-employment tax or payroll taxes. They are only subject to income tax. This is the key tax advantage: you shift income from salary (subject to payroll tax of up to 15.3%, split between you and the business, with the Social Security part capped at the wage base) to distributions (no payroll or SE tax).
Does S-Corp election affect my liability protection?
No. S-Corp is a tax election, not a legal structure. Your LLC still provides the same liability protection. You are simply telling the IRS to tax your LLC as an S-Corporation instead of as a sole proprietorship or partnership.
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