TaxWrench

S-Corp vs LLC Tax Savings Calculator

See exactly how much you'd save in self-employment taxes by electing S-Corp status. Updated for 2024 tax rates.

Your Business Finances
$
Total revenue minus business expenses (before owner pay)
$
Combined W-2 income from other jobs (affects Social Security cap)
$
IRS requires "reasonable compensation" — typically 40-60% of net profit
$0
Estimated Annual Tax Savings with S-Corp Election

💼 As an LLC (Default)

Net Business Profit —
SE Tax (Social Security) —
SE Tax (Medicare) —
Additional Medicare (0.9%) —
SE Tax Deduction (50%) —
Total SE Tax —

🏢 As an S-Corp

Owner Salary (W-2) —
Payroll Tax (employee half) —
Payroll Tax (employer half) —
Additional Medicare (0.9%) —
S-Corp Admin Cost (est.) —
Total Employment Tax —

Net Annual Savings: $0

Savings from lower SE tax minus S-Corp administrative costs

Important: This calculator estimates self-employment tax savings only. It does not calculate federal/state income tax, QBI deductions, health insurance deductions, or retirement contributions. Actual savings vary. Consult a CPA before electing S-Corp status — there are IRS requirements, payroll obligations, and state filing fees to consider.
📐 How This Is Calculated

LLC (Sole Prop / Single-Member) — Self-Employment Tax

As an LLC taxed as a sole proprietor, your entire net profit is subject to self-employment tax.

SE Net Earnings = Net Profit × 0.9235 (multiply by 92.35% per IRS rules)
Social Security Tax = min(SE Net Earnings, $168,600) × 12.4% (2024 wage base)
Medicare Tax = SE Net Earnings × 2.9%
Additional Medicare = max(0, SE Net Earnings - threshold) × 0.9% threshold: $200,000 single / $250,000 MFJ
SE Tax Deduction = Total SE Tax × 50% (deducted from gross income)

S-Corp — Payroll Taxes on Salary Only

With an S-Corp, you pay yourself a "reasonable salary." Only the salary (not distributions) is subject to payroll taxes.

Employee SS = min(Salary, $168,600) × 6.2%
Employer SS = min(Salary, $168,600) × 6.2%
Employee Medicare = Salary × 1.45%
Employer Medicare = Salary × 1.45%
Additional Medicare = max(0, Salary - threshold) × 0.9%
Profit as Distribution = Net Profit - Salary - Employer Payroll Taxes → Distributions are NOT subject to SE tax (this is the savings)

The Math Behind the Savings

The key insight: S-Corp distributions are not subject to the 15.3% self-employment tax. If you earn $120,000 and pay yourself $60,000 in salary, the remaining ~$60,000 in distributions avoids self-employment tax entirely.

S-Corp Admin costs (accounted for in calculator): $1,500–$3,000/year for payroll service (Gusto ~$500/yr) + additional CPA work for 1120-S return.

2024 Key Numbers

  • Social Security wage base: $168,600
  • Social Security rate: 12.4% (split 6.2% employee / 6.2% employer)
  • Medicare rate: 2.9% (split 1.45% / 1.45%)
  • Additional Medicare: 0.9% on earnings over $200K (single) or $250K (MFJ)
  • Minimum suggested S-Corp salary: generally 40–60% of net profit

Ready to Form Your S-Corp?

A business formation service can handle your S-Corp election, EIN, and state filings — usually faster and cheaper than a lawyer.

Form Your S-Corp with ZenBusiness → Or compare formation services →
❓ Frequently Asked Questions

When does an S-Corp election make financial sense?

Most CPAs suggest considering it once you have at least $40,000–$50,000 in annual self-employment income. Below that, the administrative overhead (payroll software, extra CPA fees, state filing costs) may eat into the tax savings.

What is "reasonable compensation"?

The IRS requires that S-Corp owner-employees receive a salary comparable to what you'd pay someone else to do your job. There's no fixed formula, but 40–60% of net profit is a common rule of thumb. The IRS can reclassify distributions as wages if your salary is unreasonably low.

Does this calculator account for QBI deduction?

No. The Section 199A Qualified Business Income (QBI) deduction allows many pass-through entity owners to deduct up to 20% of qualified business income. An S-Corp election can reduce your QBI base (since W-2 wages are excluded). Your CPA should model the combined impact.

Are there states where S-Corp election doesn't make sense?

Some states (notably California) charge S-Corps a minimum franchise tax of $800/year plus a 1.5% S-Corp net income tax. This can significantly reduce or eliminate the federal savings. Always factor in state-specific costs.