Free tool
S-Corp Tax Savings Calculator
If you run a profitable business as a sole proprietor or LLC, you are paying self-employment tax on every dollar of profit. Electing S-corp status changes that. Here is roughly what it is worth.
Your numbers
Assumptions
These drive the result. Change them and watch the number move.
How this is calculated. A sole proprietor or single-member LLC pays self-employment tax on essentially all net profit. An S-corp owner pays payroll tax only on their W-2 salary; remaining profit is distributed without self-employment tax. The saving shown is the difference, less the annual cost of running payroll, less an estimate of the QBI offset at the low end.
Reasonable salary is not a formula. The IRS applies a facts-and-circumstances test: your role, hours, experience, and what comparable work pays. The percentages above are illustrative starting points, not safe harbors. Setting salary low to chase a bigger number is how these elections get challenged.
Figures current for the 2026 tax year (Social Security wage base $184,500; additional Medicare tax 0.9% above $200,000 single / $250,000 joint / $125,000 married filing separately). Rates and thresholds change annually.
This calculator is general information, is illustrative only, and is not tax advice. Results vary and no outcome is guaranteed. Consult a tax professional about your specific circumstances. That is what we do.
The S-corp election is one lever, and rarely the biggest
It is the easiest one to put a number on, which is why it gets its own calculator. It is not the strategy that usually moves the most money.
Unused retirement capacity is normally larger. A solo 401(k) shelters far more than most owners contribute, and for an older high earner a defined benefit plan can shelter six figures. Beyond that sit Section 280A, Section 105 medical reimbursement, an accountable plan, and how these interact with your QBI deduction. Some of them cancel each other out. A greater-than-2% S-corp shareholder, for instance, generally cannot take medical reimbursements tax-free the way a sole proprietor with a spouse-employee can.
Working out which combination applies to you is the part that needs your actual return in front of someone. That is what we do.
Common questions
- At what profit level does an S-corp become worth it?
- It depends on the salary you could defend as reasonable, because that salary still carries payroll tax. Below roughly $60,000 to $80,000 of net profit, payroll and compliance costs commonly eat most of the saving.
- Why does the saving stop growing at higher profit?
- Because the Social Security portion is capped at the wage base. Once your salary clears it, that 12.4% applies on both sides of the comparison and only the Medicare difference remains. The saving is largest roughly between $150,000 and $350,000 of profit.
- Does this affect my QBI deduction?
- Yes, and it can go either way. Below the taxable-income threshold a W-2 salary shrinks qualified business income. Above it, the wage limitation means salary can preserve a deduction a sole proprietor paying no wages would lose. This is one of the more commonly missed interactions.
- What counts as a reasonable salary?
- There is no formula. The IRS weighs your duties, hours, training, experience, and what comparable work pays. Rules of thumb like 60/40 are not safe harbors, and setting salary low to chase a bigger saving is how these elections get challenged.