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S-Corp Tax Savings Calculator

Compare what you'd pay as a sole proprietor (or single-member LLC) versus an S-corporation — including payroll taxes, the QBI deduction, and the real cost of running an S-corp.

Revenue minus expenses, before paying yourself.

The IRS requires reasonable compensation for the work you do. 40–60% of profit is a common starting range, but your actual number should be documented.

Payroll service, separate 1120-S return, state filings. $1,200–$2,500 is typical.

How the S-corp savings math works

A sole proprietor or single-member LLC pays 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare) on 92.35% of net profit, on top of regular income tax. An S-corporation splits your profit into two streams: a W-2 salary, which is subject to the same payroll taxes, and shareholder distributions, which are not. The payroll tax you avoid on the distribution is the core of the savings.

Two things pull in the other direction, and this calculator models both. First, an S-corp costs real money to run — payroll processing, a separate Form 1120-S, and bookkeeping discipline. Second, the 20% QBI deduction applies to your distribution but not to your own salary, so a sole proprietor sometimes gets a larger QBI deduction than the same person operating as an S-corp.

The right answer also depends on your reasonable-compensation number, retirement contribution plans, and whether your income is near the Social Security wage base. Before filing Form 2553, it's worth a one-hour conversation with a CPA — the election has a deadline and undoing it is messy.

S-Corp Questions, Answered

How does an S-corp save on taxes?
A sole proprietor pays 15.3% self-employment tax on essentially all business profit. With an S-corporation, you pay yourself a reasonable salary (subject to payroll tax) and take the remaining profit as distributions, which are not subject to Social Security and Medicare taxes. The savings come from the payroll tax avoided on the distribution portion.
What is a reasonable salary for an S-corp owner?
The IRS requires S-corp owner-employees to pay themselves reasonable compensation for the work they perform — comparable to what you'd pay someone else to do the same job. Setting salary too low is the most common S-corp audit trigger. A CPA can help you document a defensible salary based on your role, hours, and industry data.
At what profit level is an S-corp worth it?
As a rule of thumb, S-corp elections usually start paying off once net profit consistently exceeds roughly $50,000–$60,000 per year, after accounting for the added costs of payroll processing and a separate corporate tax return. Below that, the administrative costs often eat the savings.
Does an S-corp election change my QBI deduction?
Yes. The 20% qualified business income (QBI) deduction applies to S-corp distributions but not to the owner's W-2 salary, while a sole proprietor's entire net profit (less half of SE tax) generally qualifies. This calculator models that difference, which partially offsets the payroll-tax savings.
Estimates only — not tax advice. This tool models federal income and payroll taxes using the standard deduction and simplified QBI rules for the selected tax year. It does not account for state taxes, other household income, itemized deductions, retirement contributions, or QBI wage limits. Consult a licensed CPA before making an entity election.

Thinking About an S-Corp Election?

We'll run your real numbers, document a defensible salary, and handle Form 2553 and payroll setup — all virtually, anywhere in Texas.

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