Phase 1 · Core Sovereign Layer
LLC vs S-Corp Tax Calculator
Past a certain income, an S-Corp election quietly saves thousands in self-employment tax — but below it, the overhead eats the benefit. Find your exact inflection point.
Under the hood
The math, fully exposed
Income tax is identical for both (pass-through), so it cancels — we compare only payroll tax plus overhead (2024 Social Security wage cap $168,600):
LLC self-employment tax = 15.3% × (net profit × 92.35%), SS portion capped
S-Corp payroll tax = 15.3% on salary only, SS portion capped
Distributions = net profit − salary (no payroll tax)
Tax saved = LLC SE tax − S-Corp payroll tax
Net benefit = tax saved − S-Corp overhead
- The lever is the salary split: only the salary is taxed for FICA, so a lower (but still reasonable) salary means more untaxed distributions — and more saving.
- Overhead sets the floor: running payroll and a second tax return costs real money. Below the break-even profit, that overhead is larger than the tax saved.
- Estimate, not advice: this ignores state income tax differences and the QBI deduction interaction. Confirm your reasonable salary and numbers with a CPA before electing.
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Answers
Frequently asked questions
How does an S-Corp save on taxes versus an LLC?
A single-member LLC pays self-employment tax (15.3%) on all net business profit. An S-Corp splits profit into a reasonable salary (subject to payroll/FICA tax) and distributions (not subject to it). You only pay the 15.3% on the salary, so every dollar taken as a distribution instead of salary avoids that tax. Income tax is the same either way — the savings are purely on payroll tax.
When is it worth switching to an S-Corp?
When the self-employment tax you'd save on distributions exceeds the added cost of running payroll, filing a separate return and the extra bookkeeping. That break-even commonly lands somewhere around $60,000–$90,000 of net profit, but it depends entirely on your reasonable salary and admin costs — this calculator finds your exact number.
What is a "reasonable salary" and why does it matter?
The IRS requires S-Corp owners to pay themselves a reasonable wage for the work they do before taking distributions. Set it too low to dodge payroll tax and you invite an audit and penalties; set it too high and you hand back the savings. A common benchmark is roughly 40–60% of profit, but it should reflect what you'd pay someone to do your job.
What are the downsides of an S-Corp?
Real ones: you must run formal payroll, file a separate 1120-S return, keep cleaner books, and often pay state franchise fees and a payroll service. That's the annual overhead this calculator subtracts. Below the break-even income, those costs exceed the tax savings and a plain LLC is simpler and cheaper.