Where the savings come from
A sole proprietor or single-member LLC owner pays self-employment tax of 15.3% on 92.35% of net profit (12.4% Social Security up to the wage base, plus 2.9% Medicare). With an S corp election, you pay payroll taxes only on the salary you take. Profit above that salary is passed through as distributions, which are taxed as income but not subject to Social Security and Medicare tax. The difference between the two is the main source of savings.
What the calculator compares
Both scenarios use the same profit, filing status and other income, and the 2026 federal figures.
- Sole proprietor / default LLC: self-employment tax, a deduction for half of that tax, income tax and the QBI deduction.
- S corp: payroll taxes on your salary, income tax on salary plus pass-through profit, and the QBI deduction, where your salary counts as W-2 wages.
- Extra S corp costs: a yearly amount you enter for payroll service, the S corp tax return and state fees. Your accountant can give you a realistic figure, and the default is only a placeholder.
Step-by-step example
A single filer has $120,000 of profit and a $60,000 salary under the S corp.
| Sole proprietor | S corp | |
|---|---|---|
| Employment taxes | $16,955 | $9,180 |
| Federal income tax | $11,506 | $14,122 |
| Total federal tax | $28,462 | $23,302 |
The saving before costs is $28,462 − $23,302 = $5,160. After $2,000 of extra costs the net saving is $3,160. Income tax is higher under the S corp here because the sole proprietor deducts half of the self-employment tax and gets a larger QBI deduction. That is why the saving is smaller than the payroll tax difference alone.
When an S corp may not help
- Profit is low, so the saving does not cover the extra costs.
- State taxes or fees on S corps are high.
- You would need to pay a high salary for the work you do, which leaves little profit to take as distributions.
To be taxed as an S corp for a year, an eligible entity generally files Form 2553 within two months and 15 days of the start of that tax year, with relief available for late elections. Talk to an accountant before you file.
Common mistakes
- Entering profit after your own pay. Enter profit before owner pay.
- Choosing an unrealistically low salary to increase the saving.
- Ignoring the yearly costs of running an S corp.
How to use this calculator
- Enter your values. Compare your federal tax as a sole proprietor or default LLC with your tax after an S corp election, including the extra costs.
- Check units and assumptions. Make sure the inputs use the same scale and that any optional settings match your situation.
- Calculate and review. Compare the output with the formula below and note any limitations stated on the page.
Formula and calculation method
The result is an estimate based on the inputs and assumptions documented by this calculator. Federal tax outcomes depend on filing status, other income, deductions, payroll, wage bases, and eligibility rules; a simplified calculator cannot represent every household or business situation.
Worked example
For example, compare the estimated tax result with and without the proposed S corporation treatment while keeping assumptions consistent. Change one input at a time and review which taxes and expenses are included before relying on the difference.
Search and practical tips
People commonly search for a s corp tax savings calculator – llc vs s corp, how to calculate the result step by step, which formula to use, and how to check the answer manually. Use the formula above as a transparent starting point, and consult the relevant institution, agency, or qualified professional when an official rule or personal circumstances affect the result.
Frequently asked questions
How much can an S corp save in taxes?
It depends on your profit, the salary you pay yourself and your filing status. The saving comes mainly from avoiding payroll tax on distributions. Enter your numbers above to see an estimate.
At what profit does an S corp make sense?
There is no single number. The election makes sense when the tax saving is larger than the extra costs of payroll, a separate tax return and state fees. At lower profits the saving is often small or negative, so test your own figures.
Is an S corp the same as an LLC?
No. An LLC is a legal structure, and an S corp is a tax status. An LLC can elect to be taxed as an S corp by filing Form 2553 with the IRS.
What salary should I enter?
Enter a reasonable salary for the work you do in the business. A lower salary increases the estimated saving but can attract IRS scrutiny, so the calculator reminds you when salary is under 40% of profit.
Does this include state taxes?
No. It compares federal tax for tax year 2026 only. State income tax, state S corp fees and local taxes can change the result, so check them before you decide.