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As a sole proprietor you pay the full 15.3% self-employment tax on all your profit. Elect S-Corp status and you split that profit into a salary (taxed) and a distribution (not). This estimates the 2026 payroll-tax saving — and weighs it against the real cost of running an S-corp.
Nothing you type leaves your browser. This is an estimate, not tax advice — an S-corp election has real legal and payroll obligations. Confirm the numbers and the decision with a CPA or enrolled agent.
A sole proprietor or single-member LLC pays self-employment tax — the full 15.3% of Social Security and Medicare — on essentially all of their net profit. There's no employer to split it with, so you're both halves. That's the cost this calculator measures on the left.
When you elect to be taxed as an S-Corporation, your business profit gets split into two streams. You pay yourself a reasonable salary, which runs through payroll and is hit with the same 15.3% in FICA tax. Everything left over is a distribution — your share of the company's profit — and a distribution is not subject to payroll tax at all. That's the entire mechanism: the bigger the distribution (relative to the salary), the more profit escapes the 15.3%.
The catch is the word reasonable. You can't pay yourself a $10,000 salary on $200,000 of profit just to dodge payroll tax — the IRS requires the salary to reflect what your role genuinely pays, and lowballing it is one of the most-audited areas for S-corps. Set the salary honestly here and the saving the tool shows is the saving you can actually defend.
Two things quietly limit the benefit, and the calculator shows both. First, an S-corp adds real costs: payroll software, a separate corporate tax return, sometimes a state franchise fee. Below roughly $40,000–$60,000 of profit, those costs often swallow the whole saving, which is why most advisors say the election only pays off once you're comfortably profitable. Second, the sole-proprietor side first shrinks its taxable base to 92.35% — a break a W-2 salary doesn't get — so if you set the salary equal to (or above) your whole profit, the S-corp can actually pay more payroll tax than staying a sole prop. And once your salary passes the Social Security wage base, both options pay identical Social Security, so only the 2.9% Medicare on the distribution is ever saved from that point up.
To stay honest and verifiable, this calculator isolates the payroll/SE-tax saving — the part the S-corp election actually changes. It doesn't guess your income-tax bracket, because income tax is close to a wash between the two structures (a sole prop deducts half its SE tax; an S-corp deducts the employer half of payroll tax — similar amounts). It also leaves out the 20% Qualified Business Income (QBI) deduction, which can slightly favor staying a sole proprietor since wages aren't QBI. Treat the headline as your payroll-tax saving, then have a CPA confirm the full picture for your situation and state.
There's no hard line, but the added cost of payroll and a separate tax return — often $1,000–$2,500 a year — has to be smaller than the payroll tax you save. That usually means the election starts to pay off somewhere around $40,000–$80,000 of net profit, and the benefit grows from there. Enter your real numbers above to see your own break-even instead of a rule of thumb.
It's the wage you'd have to pay someone else to do your job — based on your role, experience, hours, and local market. The IRS scrutinizes S-corp salaries because paying yourself too little to avoid payroll tax is a common abuse. Many owners land somewhere around 40–60% of profit, but that's a starting point, not a safe harbor; document how you arrived at the figure.
Barely. The S-corp election mainly changes payroll tax, which is what this tool measures. Income tax comes out roughly the same either way, because the deductions that reduce it (half your SE tax as a sole prop, the employer payroll half as an S-corp) are similar in size. The 20% QBI deduction can even tilt slightly toward staying a sole proprietor. The real, reliable win is on payroll tax.
Two reasons. If your salary is set close to your whole profit, almost nothing is left as a distribution, so you pay payroll tax on nearly everything — plus the sole-prop side gets the 92.35% adjustment a salary doesn't. And the S-corp's fixed yearly costs are real money. When those outweigh a thin payroll-tax saving, staying a sole proprietor is genuinely cheaper, and the tool says so.
No. An LLC is a legal structure; "S-corp" is a tax election. By default a single-member LLC is taxed exactly like a sole proprietor (full self-employment tax). You can ask the IRS to tax that same LLC as an S-corporation — which is the choice this calculator models. You don't have to change your LLC to do it, but you do take on payroll and a separate return.
No. Every calculation runs entirely in your browser — nothing you type is sent to a server or stored. The link in your address bar updates so you can bookmark or share a scenario, but it only contains the numbers you chose.
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