LLC vs S-Corp Tax Calculator
The S-Corp election does not change your income tax. It changes how much of your profit is exposed to self-employment tax. This estimates that difference so you can see whether the election is worth the extra paperwork at your numbers.
Default LLC: SE tax
$16,955
On the full net profit
S-Corp: FICA on salary
$9,945
$55,000 paid as distributions, FICA-free
Estimated savings
$7,010
per year with S-Corp election
How to read this
A default LLC pays self-employment tax (15.3%, covering Social Security and Medicare) on essentially all of its net profit. With an S-Corp election, you pay yourself a salary, and payroll taxes apply only to that salary. Profit distributed above it is not subject to self-employment tax.
That is where the saving comes from, and also where the catch is: the IRS requires the salary to be reasonable for the work you actually do. Setting it artificially low to shrink the tax is the single most common way an S-Corp election goes wrong in an audit.
An S-Corp also costs money to run: payroll filings, a separate return, usually a bookkeeper or accountant. A common rule of thumb is that the election starts making sense once the estimated saving comfortably exceeds those costs, not the moment it turns positive.
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Common questions
- What counts as a reasonable salary?
- There is no formula in the tax code. In practice it means what you would have to pay someone else to do your job, supported by role, hours, experience and industry data. If your business nets $120,000 and you pay yourself $20,000, that is difficult to defend.
- At what profit does an S-Corp election start to make sense?
- It depends on your salary level and what payroll and accounting cost you. Rather than trust a threshold you read somewhere, put your own numbers in above and compare the estimated saving against what your accountant would charge to run it.
- Is an S-Corp a different type of company?
- No. It is a tax election, not an entity type. An LLC can elect to be taxed as an S-Corp and remain an LLC in every other respect.
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