LLC vs S-Corp Tax Calculator
Calculate the potential self-employment tax savings of electing S-Corp status for your LLC. S-Corps allow you to split income between salary and distributions.
📅 Tax Year:
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$
Income
after expenses (before owner pay)
$
Must be
reasonable for your role
How It Works
LLC (Sole Proprietorship)
You pay self-employment tax (15.3%) on 100% of your net profit.
S-Corp
You pay self-employment tax (FICA) only on your salary. The remaining profit is taken as a "distribution," which is not subject to self-employment tax.
Example: $100k profit. $60k salary. You save 15.3% tax on the $40k distribution (~$6,000 savings).
Important Considerations
- Reasonable Salary: The IRS requires you to pay yourself a "reasonable salary" for the work you do. Setting it too low to save taxes is a red flag.
- Payroll Costs: S-Corps must run payroll, which costs money (service fees, unemployment insurance). Ensure savings outweigh these costs.
- QBI Deduction: S-Corp election affects your Qualified Business Income deduction calculation.
Use Cases
- Comparing total tax liability between LLC (sole proprietor) and S-Corp election
- Calculating potential self-employment tax savings from the S-Corp salary/distribution split
- Determining if your business profit level justifies the costs of S-Corp election
- Setting a reasonable salary that passes IRS scrutiny for S-Corp owners
- Evaluating whether S-Corp payroll costs offset the self-employment tax savings
Assumptions & Limitations
- LLC income is subject to full self-employment tax (15.3%) on 92.35% of net profit
- S-Corp owner pays FICA only on salary; distributions are not subject to self-employment tax
- The IRS requires a reasonable salary for S-Corp shareholders who perform services
- Does not account for payroll processing costs, unemployment insurance, or state-specific fees
- Does not calculate the Qualified Business Income (QBI) deduction impact
- Assumes a single-owner LLC or single-shareholder S-Corp for simplicity
Sources & References
- IRS Publication 3402 — Taxation of Limited Liability Companies
- IRS Form 2553 Instructions — Election by a Small Business Corporation (S-Corp)
- IRS Publication 334 — Tax Guide for Small Business
- IRS S-Corporations — S-Corp overview and requirements
- IRS Self-Employment Tax — Social Security and Medicare taxes
Disclaimer: This calculator provides estimates for educational purposes only. It does not constitute tax advice. Consult a qualified tax professional for advice specific to your situation.