Compare your LLC taxed as a sole proprietorship (default) vs LLC with S-Corp election. See how much self-employment tax the S-Corp structure saves you.
Net savings with S-Corp election
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Default LLC (sole prop) total tax
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LLC with S-Corp election total tax
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SE tax saved on distributions
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S-Corp admin cost
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The one tax an S-Corp actually saves
An LLC by itself is not a tax classification. A single-member LLC is a disregarded entity that lands on Schedule C, and a multi-member LLC files a partnership return on Form 1065. In both defaults, every dollar of net profit is hit with 15.3 percent self-employment tax, which is Social Security at 12.4 percent up to the wage base plus Medicare at 2.9 percent with no ceiling. Electing S-Corp status on Form 2553 changes only one thing that matters here: profit you take as a distribution rather than as W-2 salary escapes that 15.3 percent. Your salary still pays full FICA, but the leftover profit does not. That single mechanism is the entire case for the election.
Why the breakeven is higher than people expect
The popular rule says the election pays off somewhere around $40,000 to $60,000 of profit. In this calculator the crossover sits noticeably higher, and the reason is the Qualified Business Income deduction under Section 199A. On the default LLC side, that 20 percent deduction applies to your full net profit, which meaningfully lowers your federal income tax and partly offsets the self-employment tax you are trying to avoid. The S-Corp side gets QBI too, but only on the smaller distribution, so the gap between the two structures narrows. The election does not clearly win until profit is well into six figures, once the self-employment tax saved on a large distribution finally outruns both the payroll taxes on your salary and the extra admin cost.
A 180,000 dollar profit, single filer
To see the crossover, raise the profit input to $180,000 with an $80,000 reasonable salary and the default $1,500 of admin cost. Below is what the tool computes for a single filer in 2026, using the $176,100 Social Security wage base and the $15,750 standard deduction baked into the calculator.
| Item | Default LLC | S-Corp election |
|---|---|---|
| Self-employment or payroll tax | $25,433 | $12,240 |
| Federal income tax | $21,185 | $32,267 |
| Admin cost | $0 | $1,500 |
| Total tax plus cost | $46,619 | $46,007 |
| Net savings with S-Corp | $612 | |
The election saves $612 here, which the tool correctly flags as marginal. The payroll-tax column drops sharply because only the $80,000 salary pays FICA while the $100,000 distribution does not. But the income-tax column rises on the S-Corp side, because its smaller QBI deduction leaves more profit exposed to ordinary rates. A $612 edge is real money, but it barely covers the hassle of running payroll and filing a separate return, which is why I would not elect at this level on tax grounds alone. Push profit higher and the savings widen quickly.
Reasonable salary is where audits live
The election only works if the IRS accepts your salary as reasonable for the services you perform. There is no bright-line percentage in the statute, but the agency has won cases against owners who paid themselves a token $20,000 salary while pulling $200,000 in distributions. A defensible approach is to anchor salary to what you would pay an employee to do your job, often landing in the 30 to 60 percent range this tool suggests, and to keep notes on comparable wages. Set the salary too low and you invite reclassification of distributions as wages, with back payroll taxes and penalties. Set it too high and you give back the very savings you elected for. The slider in this calculator lets you see how that tradeoff moves the net number in real time.
What does the admin cost actually cover?
An S-Corp has to run formal payroll, which means a payroll service of roughly $40 to $60 a month, quarterly Form 941 filings, year-end W-2 and W-3 forms, and a separate Form 1120-S corporate return that most owners pay a preparer to handle. The $1,500 default is a reasonable all-in estimate for a simple one-owner S-Corp. If your tax preparer charges more for the 1120-S, raise the input, because that cost comes straight off your savings.
Does the S-Corp election affect my retirement contributions?
Yes, and it can cut both ways. Employer retirement contributions to a Solo 401(k) or SEP are based on W-2 wages once you are an S-Corp, so a lower salary can shrink the maximum you are allowed to put away. A sole proprietor calculates the same limit off net earnings from self-employment. Before you set salary purely to minimize FICA, check how it caps your tax-advantaged retirement room, because losing deduction space can quietly erase the payroll-tax win.