S-Corp Tax Savings Calculator

As a sole proprietor, all of your net profit is hit by the 15.3% self-employment tax. With an S-Corp election, you pay yourself a reasonable salary (which is subject to payroll taxes) and take the remaining profit as a distribution — which is not subject to self-employment or payroll tax. The savings are roughly 15.3% of the distribution, minus the extra overhead of running the S-Corp.

A common tipping point is around $60,000–$80,000 of net profit. Below that, payroll costs, a separate business tax return, and state fees usually eat the savings. This calculator shows your actual number — including the overhead — so you don't have to rely on the rule of thumb.

The IRS requires S-Corp owner-employees to pay themselves reasonable compensation for the work they perform before taking distributions. There is no official formula; advisors commonly land between 40% and 60% of profit, benchmarked against what you'd pay someone else to do your job. Setting an unreasonably low salary is a well-known audit trigger.

Typical overhead includes payroll software or a payroll service, a separate business tax return (Form 1120-S), possibly a bookkeeper, and state registration or franchise fees. All-in, most solo S-Corps spend $1,500–$4,000 per year — some states (like California, with its $800 minimum franchise tax plus a 1.5% S-Corp tax) add more.

You form an LLC (or corporation), then file IRS Form 2553 to elect S-Corp taxation. For the election to apply to a tax year, the deadline is generally 2 months and 15 days after the start of that year, though late-election relief is often available. Existing LLCs can elect without changing their legal structure.

Mostly no — the savings are in self-employment/payroll taxes. In fact, the QBI deduction can be slightly smaller under an S-Corp because it only applies to the distribution share, not your salary. This calculator accounts for that, which is why the savings are less than a flat 15.3% of the distribution.