Beaconshire Advisory · www.beaconshireadvisory.com · S-Corp vs. LLC Tax Savings Calculator (2026) · printed
Calculator · Tax
Would an S-Corp election actually save me money this year?
Most calculators multiply profit by 15.3% and call it savings. This one runs the full comparison: self-employment tax against employer and employee FICA on a reasonable salary, the §199A deduction on both sides, the payroll and extra-return costs, and any state entity-level tax — then shows how the answer moves with the salary you pick.
Side by side
Same profit, same household — two structures.
How savings move with salary
Net annual savings at each salary level from $0 to 100% of profit. The dashed line marks the salary you entered.
What this means
The parts of the decision a spreadsheet leaves out.
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How it works
Methodology & assumptions
- LLC / sole proprietor. All profit is subject to self-employment tax: 92.35% of profit × 12.4% Social Security up to
$184,500plus 2.9% Medicare (0.9% more above $200,000 / $250,000). Half of the SE tax, health insurance and retirement contributions are deducted to reach AGI. The §199A deduction is 20% of profit net of those three items. - S-Corporation. Your salary carries employer FICA (6.2% + 1.45%), employee FICA (same, withheld), FUTA (0.6% of the first $7,000) and state unemployment (your state’s new-employer rate on its wage base). Profit after salary, employer taxes, administration and any entity tax passes through on a K-1 with no payroll tax. §199A is 20% of that K-1 amount, limited above the threshold to 50% of W-2 wages paid (which salary supplies).
- Income tax on both sides uses the 2026 brackets, standard deduction (or your itemized total), child tax credit, NIIT and Additional Medicare rules from the estimated tax calculator. State tax is approximated as rate × federal AGI in both cases.
- Savings = (sole-prop taxes) − (S-Corp taxes + employer payroll taxes + payroll service + extra return + entity tax). The curve recomputes the S-Corp side at eleven salary levels; break-even is the highest salary at which savings are still positive.
- Reasonable compensation. The salary-as-%-of-profit flag is a heuristic, not a rule. The IRS and the Tax Court (Watson v. Commissioner, 2012; Glass Blocks Unlimited, 2013) look at duties, time, training, comparable pay and whether distributions are really disguised wages.
- Not modeled. Late-election relief, accumulated-adjustments accounting, built-in-gains tax for converted C-Corps, state PTE-tax elections (which can add savings), health-insurance W-2 reporting mechanics, and the effect on Social Security benefit accrual of lower reported wages.
This calculator is an educational estimate built from published figures and the assumptions listed above. It is not tax, legal, or financial advice, does not account for every provision that may apply to you, and is not a substitute for a return prepared from your actual records. Figures are checked when published and may lag mid-year changes.
Questions
Common questions
What is a reasonable salary for an S-Corp owner?
The amount a comparable business would pay an unrelated person to do what you do. There is no percentage safe harbor. In practice we build a short memo from three inputs — your actual duties and hours, a published salary source for that role in your area, and the business’s capacity to pay — and revisit it when profit changes materially. A salary that is a small fraction of profit, with large distributions, is the pattern that gets reclassified.
Why does my income tax go up slightly as an S-Corp?
Two reasons. The §199A deduction is 20% of qualified business income, and salary is not QBI, so the deduction base shrinks. And a sole proprietor deducts half of SE tax, which the S-Corp owner no longer has. Both effects are usually much smaller than the payroll-tax saving, but they are real, which is why the calculator nets them out.
At what profit level does an S-Corp start to make sense?
With typical administration costs of $2,000–$4,000 a year, the election usually turns positive somewhere between $60,000 and $80,000 of profit, assuming a reasonable salary leaves a meaningful distribution. Below that, the paperwork outweighs the saving. Above roughly $300,000 the per-dollar advantage shrinks because the Social Security wage base caps the biggest piece of SE tax.
How and when do I elect?
Form 2553, signed by all shareholders, filed within two months and 15 days of the start of the tax year you want it to apply to (or any time in the prior year). An LLC files the same form and is treated as a corporation for tax purposes while remaining an LLC under state law. Late-election relief under Rev. Proc. 2013-30 is often available, but it is better to plan it.
Does the election change my state taxes?
Usually not the income tax, which still flows through to you. But some states impose an entity-level tax on S-Corps (California 1.5% with an $800 minimum, Tennessee franchise and excise taxes, New York City’s corporate tax), and many states now offer an elective pass-through entity tax that can turn the SALT cap into a federal deduction. Enter any entity-level cost in the field provided; the PTE election is a separate analysis.
What about retirement contributions?
An S-Corp’s employer contribution is limited to 25% of your W-2 salary, while a sole proprietor can contribute 20% of net self-employment earnings. If you fund a large Solo 401(k) or SEP, a low salary can cost you contribution room. The Solo 401(k) calculator shows both limits side by side.
Keep going
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Ready to make the election properly?
S-Corp election and reasonable-compensation analysis is a core Tax Advisory engagement: Form 2553, a documented compensation memo, payroll setup and the 1120-S. We will tell you first whether the math works.
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