How an S-corp saves on tax
By default, a single-member LLC or sole proprietorship pays self-employment tax — 15.3% — on all of its net profit. When you elect to be taxed as an S-corporation, you split that profit into two parts: a reasonable salary you pay yourself (which is subject to payroll tax) and distributions (which are not). Because the distribution portion escapes the 15.3% employment tax, an S-corp can save a profitable owner thousands of dollars a year. This calculator estimates that saving for your numbers.
How to use it
- Enter your net business profit (income after expenses, before any owner salary).
- Enter a reasonable salary — what you'd pay an employee to do your job. The calculator treats the rest of the profit as distributions.
The result compares the self-employment tax you'd pay as an LLC/sole proprietor against the payroll tax you'd pay on just the salary as an S-corp, and shows the difference.
The "reasonable salary" rule
The catch — and the part the IRS scrutinizes most — is that your salary must be reasonable for the work you do. Pay yourself an artificially low salary to dodge payroll tax and you risk an audit and reclassification. A defensible salary reflects what the role would earn in the open market. The lower (but still reasonable) your salary relative to profit, the larger the saving, but the line must be genuine.
What this calculator does and doesn't include
It compares employment tax only — self-employment tax versus S-corp payroll tax. Your income tax is roughly the same either way, because the full profit still passes through to your personal return in both structures (as profit for an LLC, or as salary plus distributions for an S-corp). The estimate also doesn't include state taxes, state S-corp fees, the cost of payroll and tax prep, or the qualified business income (QBI) deduction nuances that can differ between structures.
Before you elect
An S-corp election (Form 2553) is a meaningful commitment — payroll, stricter bookkeeping, and a separate business return. Use this calculator to see whether the potential saving justifies that, then confirm with a CPA or tax advisor who can weigh your full situation. To see your current self-employment tax as an LLC or sole proprietor, use the self-employment tax calculator, and plan your payments with the quarterly estimated tax calculator.