Compare your total 2026 tax burden under a default LLC (sole proprietorship) versus an S-Corp election. See your real savings after payroll and compliance costs.
Both an LLC and an S-Corp protect your personal assets from business lawsuits. The difference is how the IRS taxes your profits. A default LLC (single-member) is taxed as a sole proprietorship: you pay 15.3% self-employment tax on 100% of your net profit, plus federal income tax. An S-Corp splits your income into a W-2 salary (subject to FICA payroll taxes) and distributions (not subject to self-employment or FICA taxes). That split is where the savings come from — but only if your profit is high enough to justify the extra compliance costs.
Related: Calculate your self-employment tax or plan your quarterly estimated payments.
Consider a freelancer netting $120,000 per year, filing single. As a sole proprietor, they pay self-employment tax on the full $120,000 (approximately $16,955 in SE tax alone). As an S-Corp, they might pay themselves a $72,000 reasonable salary; the remaining business profit after employer FICA is the pass-through amount. FICA applies to the salary, while the pass-through amount is not subject to self-employment tax. Under this calculator's simplified assumptions, the estimated net savings after employer FICA and about $1,300 of compliance costs is roughly $1,700 per year.
| Parameter | 2026 Value | Source |
|---|---|---|
| Social Security wage base | $184,500 | IRS Pub. 15 |
| Social Security tax rate | 12.4% (6.2% employee + 6.2% employer) | IRS |
| Medicare tax rate | 2.9% (1.45% each), no cap | IRS |
| Additional Medicare | 0.9% over $200K (single) / $250K (MFJ) | ACA |
| Standard deduction (single) | $16,100 | IRS Rev. Proc. 2025-45 |
| Standard deduction (MFJ) | $32,200 | IRS Rev. Proc. 2025-45 |
| QBI deduction | 20% of qualified business income (phase-out applies) | IRC §199A |
| Top marginal rate | 37% over $640,600 (single) | OBBBA / IRS |
The S-Corp election is not a universal tax hack. It makes sense only when three conditions are met:
| Net Profit | LLC Total Tax (est.) | S-Corp Total Tax (est.) | Net Savings | Verdict |
|---|---|---|---|---|
| $50,000 | ~$9,700 | ~$9,000 | +$700 | Marginal — borderline |
| $75,000 | ~$15,500 | ~$14,000 | +$1,500 | Marginal — borderline |
| $100,000 | ~$22,400 | ~$21,100 | +$1,300 | Marginal — borderline |
| $150,000 | ~$37,600 | ~$35,600 | +$2,000 | S-Corp likely better |
| $250,000 | ~$76,400 | ~$66,200 | +$10,200 | S-Corp strongly better |
* Estimates for single filer, no other income, 60% salary split, compliance costs included, and federal tax only. High-income non-SSTB LLC estimates assume no business W-2 wages or depreciable property for the QBI wage/property limit. Your actual results will vary.
The biggest risk in S-Corp tax planning is setting your salary too low. The IRS uses a "facts and circumstances" test, not a fixed percentage. Courts have consistently reclassified distributions as wages when shareholders underpay themselves. In one notable case, a CPA running an S-Corp was found to have paid himself only $24,000 on $700,000 of revenue; the IRS reclassified over $200,000 as wages, adding back taxes, penalties, and interest.
To set a defensible salary, use these benchmarks in order of reliability:
If you already have an LLC, electing S-Corp tax treatment is straightforward:
The Qualified Business Income (QBI) deduction allows most pass-through business owners to deduct 20% of their qualified business income. This applies to both sole proprietorships and S-Corps, but the interaction is nuanced. For S-Corps, QBI is calculated after deducting the owner's reasonable salary and employer-side FICA taxes, which means the QBI deduction is smaller than for a sole proprietor with the same gross profit. For non-SSTB income above the threshold, the calculator applies the 50% of modeled business W-2 wages limit and does not model depreciable property; the LLC estimate therefore assumes no qualifying business wages or property. For 2026, the QBI deduction begins phasing out at $201,775 (single) or $403,550 (MFJ) of taxable income and is fully phased out for Specified Service Trade or Business (SSTB) income $50,000 above those thresholds.
This calculator focuses on federal taxes, but state taxes can significantly affect the LLC vs S-Corp decision. Some states (California, New York) impose additional franchise taxes or minimum taxes on S-Corps. California charges an $800 minimum franchise tax plus a 1.5% franchise tax on S-Corp net income. New York City has its own corporate tax. Conversely, states with no income tax (Texas, Florida, Washington, Nevada) make the S-Corp math simpler. Always run your numbers with state taxes included before making a final decision.