Taxes · 2026
S-Corp vs LLC Tax Calculator
An S-Corp election converts part of your profit from self-employment income into a distribution that escapes payroll tax. It also shrinks your QBI deduction and adds real administrative cost. Most calculators skip both.
The IRS requires this to reflect the market value of your work. Too low invites audit.
Payroll service, extra tax preparation, state franchise fees, registered agent.
- Total tax as a sole proprietor / LLC
- $37,608
- Total cost as an S-Corp
- $34,007
- Payroll tax avoided on distributions
- $9,719.32
- QBI deduction given up
- $10,808
- Extra income tax from smaller QBI
- $3,619.10
- Distribution after salary
- $69,263
- Salary as a share of profit
- 50.0%
- Verdict
- Marginal — the admin burden may not be worth it
- Important limitation
- Federal estimate only; state payroll, franchise, and income taxes can change the result
Transparent method
How this calculator works
- Compare sole-proprietor self-employment and income tax with payroll and income tax after an S-Corp salary.
- Reduce the S-Corp distribution by employer payroll tax and reduce QBI because owner wages are not qualified business income.
- Subtract annual payroll, tax-preparation, state, and administration costs entered by the user.
What the result does not include
- The calculator cannot determine reasonable compensation and does not model state-specific entity, franchise, payroll, or income taxes.
- Above the QBI threshold, it uses only the statutory minimum deduction rather than guessing at SSTB, wage, or property limitations.
Common questions
How does an S-Corp actually save tax?
As a sole proprietor, net earnings are generally subject to self-employment tax. As an S-Corp you split profit into a salary, which pays payroll tax, and a distribution, which generally does not. The saving depends on the Social Security wage base, Medicare rules, QBI, reasonable compensation, and administrative costs.
Why does the QBI deduction shrink?
The 199A deduction is 20% of qualified business income, and a salary you pay yourself is wages rather than business income. Converting profit into salary removes it from the QBI base, so you lose 20% of that amount as a deduction. This claws back a meaningful share of the payroll tax saving, and most calculators online ignore it entirely.
What counts as a reasonable salary?
What you would have to pay someone else to do your job — supported by industry data, your hours, and your responsibilities. There is no safe percentage in the statute, but unreasonably low salaries are a well-documented audit trigger and the IRS has reclassified distributions as wages in court.
At what profit does this become worth it?
The common rule of thumb is somewhere around $80,000–$100,000 of profit, but that is sensitive to your state’s franchise fees and what your accountant charges. Run your own numbers and use a real quote for the extra cost rather than the default above.