LLC vs S-Corp Tax Calculator – Reasonable Salary & Self-Employment Savings (2026)

Calculate exact tax savings of electing S-Corporation status (Form 2553). Split net business profit into W-2 reasonable salary and FICA-exempt distributions to legally avoid 15.3% SE tax.

Annual Net Business Profit ($)

IRS W-2 Reasonable Owner Salary ($)

Annual S-Corp Admin & Payroll Costs ($)

Owner Marginal Federal Tax Bracket (%)

Net Annual Tax Savings

+$8,085 / year

After payroll & CPA filing fees

FICA Tax Saved on Distributions

$10,085 / yr

Exempt from 15.3% SE Tax

S-Corp Viability Verdict: S-CORP ELECTION BENEFICIAL

W-2 Owner Salary (Subject to FICA):

S-Corp Shareholder Distribution (FICA-Free):

The $80,000 Profit Rule of Thumb: S-Corp election typically becomes mathematically profitable when net business profit exceeds $80,000–$100,000, where FICA tax savings clearly eclipse annual payroll and corporate tax return (Form 1120-S) preparation costs.

LLC vs S-Corp Tax Structure Explained

By default, a Single-Member Limited Liability Company (LLC) is classified by the IRS as a 'disregarded entity' (sole proprietorship). 100% of net business profit flows directly to Schedule C, where every single dollar is hit by the 15.3% Self-Employment (FICA) Tax (12.4% Social Security up to $168,600 + 2.9% Medicare).

The S-Corporation Advantage (Form 2553)

Electing S-Corporation tax status allows owner-operators to legally split company profits into two distinct channels:

W-2 Reasonable Salary: Subject to standard payroll FICA taxes and federal/state withholding.
Shareholder Distributions: Completely exempt from the 15.3% Self-Employment / FICA tax. Distributions only pay ordinary income tax.

The IRS 'Reasonable Compensation' Mandate

Under IRS Revenue Ruling 74-44, shareholder-employees cannot pay themselves a $0 salary to completely avoid payroll taxes. Your W-2 salary must reflect fair market value for the services rendered based on industry surveys, training, hours worked, and business revenue.

Frequently asked questions

What are the additional administrative costs of an S-Corp?

Running an S-Corp requires running formal monthly or quarterly payroll (Gusto, ADP), filing quarterly Form 941 reports, paying state unemployment insurance, and filing a separate corporate Form 1120-S tax return (typically $1,200 to $2,500/yr in CPA fees).

When is an LLC better than an S-Corp?

If your net business profit is under $70,000, the tax savings are too small to justify the overhead. Furthermore, LLCs holding passive real estate should NEVER elect S-Corp status due to harsh basis limitation rules and trapped appreciation.

What is the deadline to file Form 2553 for S-Corp status?

Form 2553 must be filed within 2 months and 15 days of the start of the tax year (March 15 for calendar-year taxpayers) or within 75 days of forming the LLC. Late election relief is available under Rev. Proc. 2013-30.

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