S corp tax savings calculator

What this compares

An LLC owner who is taxed as a sole proprietor pays self-employment tax (15.3% on 92.35% of profit) on all of the profit. An S corporation owner who works in the business is paid a salary and the company pays payroll taxes on that salary only (the same 15.3%, split between employee and employer, on the full salary). Profit left over as distributions is not subject to payroll or self-employment tax. The savings come from that difference, minus the extra costs of running a corporation.

Not included: federal and state income tax differences, the qualified business income (QBI) deduction, and the deduction effects of half of self-employment tax versus the employer payroll tax. Those can move the answer in either direction, so use this as a first filter, not a final answer.

What else to weigh

• Reasonable compensation. The IRS expects an owner-employee to be paid a reasonable salary before taking distributions. A very low salary is a common audit trigger. Base it on what the role would cost to hire.
• Form 2553 timing. The S corporation election is made on Form 2553. For 2027, calendar-year entities have until March 15, 2027; check the 2027 deadlines for the date for your entity.
• Payroll obligations. You must run payroll, make payroll tax deposits and file quarterly and year-end payroll returns, and the state may add its own payroll registrations.
• Extra filings and fees. A separate corporate return (Form 1120-S), K-1s, and state-level fees or taxes for S corporations.
• Retirement, health insurance and loans. Salary affects retirement contribution limits, and owner health insurance has its own S corporation rules.
• Formation first. You need a corporation or an LLC before electing S status. See our LLC formation service for any state.

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