What is this calculator for?
You launched a one-person consulting business last year. Net income was $95,000. Your accountant emailed: "Have you considered the S-Corp election?" You searched online, found 12 different answers, and closed the tab. This calculator gives the honest math for your specific situation in under sixty seconds.
An LLC is a state-level legal entity that protects your personal assets from business liability. An S-Corp is an IRS tax election that changes how your business income is taxed — it does not change the underlying entity. Most small-business owners electing S-Corp keep the LLC for liability protection and add the S-Corp election on top. The technical phrase is "LLC taxed as an S-Corp." It's a paperwork wrapper, not a different company.
The financial trade-off comes down to one thing: self-employment tax. As an LLC default, you pay 15.3% SE tax (Social Security 12.4% + Medicare 2.9%) on 92.35% of your entire net income, capped at $176,100 for the Social Security portion in 2026. As an S-Corp, you only pay payroll tax (also 15.3%) on the "reasonable salary" you pay yourself — distributions on top of that salary aren't subject to SE tax. The IRS lets you legally split your income into wages (taxed at 15.3%) and distributions (not taxed at 15.3%). On $80K net with a $40K reasonable salary, that's roughly $5,200/year in saved SE tax.
The catch: S-Corp comes with annual overhead. You need to run actual W-2 payroll (most owners pay $600–1,500/year for a payroll service). You need to file a separate 1120-S corporate return ($500–1,500 from a CPA, vs $250–500 for a Schedule C). And the IRS scrutinizes "reasonable compensation" — setting salary too low to maximize distributions is the #1 S-Corp audit trigger.
How to use this calculator
Enter your annual net business income. This is revenue minus business expenses — what would land on Schedule C as net profit if you were filing as a sole proprietor or single-member LLC. Use last year's number if your business is established; project conservatively if you're new. The break-even for S-Corp generally sits between $40,000 and $60,000 of net income.
Enter your reasonable salary. The IRS requires S-Corp owners to pay themselves "reasonable compensation" for services performed — the salary you'd pay an arms-length employee to do the same work. For most service businesses, 40–60% of net income is a defensible range. Software developers and consultants often land at 50%. Real-estate agents and retail owners often land lower (closer to 30%) because much of their work is capital-driven, not labor-driven. Setting salary to zero or near-zero is the fastest way to trigger an audit.
Select your state. State income tax applies the same way to LLC profits and S-Corp salary + distributions (both flow to your personal 1040). But four states charge S-Corp-specific surcharges that erode the federal savings: California's $800 minimum franchise tax plus 1.5% S-Corp tax, New York City's full C-Corp treatment of S-Corps (no flow-through benefit), Illinois's 1.5% replacement tax, and Tennessee's 6.5% excise tax. The calculator doesn't model these — subtract them manually from your S-Corp savings number if you're in one of those four states.
Select your filing status for federal brackets. Married filing jointly typically lowers your effective rate by 3–5 points versus single at the same household income because joint brackets are wider. Other W-2 income (your spouse's job, or a second job you keep) stacks on top of your business income for federal and state bracket calculations.
Adjust the S-Corp overhead figure if your situation differs from the default $2,000. Owner-operators using Gusto/QuickBooks Payroll and self-filing 1120-S on TurboTax Business sometimes get under $1,200/year. Owners using a full-service CPA for everything often see $3,500–5,000/year. The lower your overhead, the lower the S-Corp break-even point.
Understanding your results
The calculator returns three side-by-side numbers: LLC total tax, S-Corp total tax, and annual S-Corp savings. The recommendation line at the top translates the math into plain English. If S-Corp saves more than $1,500/year, the election is worth the extra paperwork. If LLC saves more than $100/year, S-Corp would actually cost you money — stay LLC. Inside that $1,500 window, the decision is too close to call on tax alone; choose based on whether you expect income to grow.
The breakdown section shows each tax component separately. Compare the LLC self-employment tax line (15.3% × 92.35% × net) against the S-Corp payroll tax line (15.3% × salary only) — that's where the savings come from. Federal and state income tax are roughly the same in both scenarios because both flow through to your personal 1040; the small difference comes from S-Corp paying employer-half FICA, which reduces the distribution amount and shrinks the income-tax base by that amount.
The break-even line tells you the net income at which S-Corp savings exactly equal the S-Corp overhead. Below break-even: LLC. Above break-even: S-Corp. The formula is approximately: break-even = salary + (S-Corp overhead ÷ 14.13%). For $2,000 overhead and a $40,000 salary, that's about $54,150 net income. Below $54,150, the SE tax savings on distributions don't cover the payroll service and 1120-S filing cost.
One number the calculator does not show: the qualified business income deduction (QBI, Section 199A). This deduction lets pass-through owners deduct 20% of qualified business income, subject to income thresholds and trade restrictions. The QBI deduction applies equally to LLC and S-Corp income, so it doesn't change the comparison materially — but it does reduce both numbers by roughly 4–5% of net income for most service businesses earning under $191,950 single or $383,900 married joint (2026 thresholds). Use that mental adjustment when reading the federal income tax line.
A worked example
Maya runs a freelance UX design business in Austin, Texas. 2025 net income: $115,000. She's single, no other W-2 income. Her CPA suggested she elect S-Corp for 2026 with a $58,000 reasonable salary (industry-survey median for senior UX designers).
LLC path: SE tax of $14,646 (15.3% × 92.35% × $115,000, well below SS wage cap). Federal income tax on $115,000 − $7,323 (half SE deduction) − $15,200 (single standard deduction) = $92,477 taxable, yielding roughly $15,800 federal. Texas: $0 state income tax. Total: $30,446. Effective rate: 26.5%.
S-Corp path: Payroll tax of $8,874 (15.3% × $58,000). Employer half FICA of $4,437 reduces the distribution to $52,563. Federal income tax on $58,000 + $52,563 − $15,200 = $95,363 taxable, yielding roughly $16,400 federal (slightly higher than LLC because the SE-tax deduction is gone). Texas: $0 state. S-Corp overhead: $2,200 (Gusto payroll + self-filed 1120-S). Total: $27,474. Effective rate: 23.9%.
Annual savings: $2,972. Maya should elect S-Corp. The break-even at $58,000 salary and $2,200 overhead is about $73,500 — Maya's $115,000 is well above. She files Form 2553 by March 15, 2026, sets up Gusto, runs herself on bi-monthly W-2 payroll, and saves nearly $3,000 in year one.
Variation: same Maya, but income drops to $65,000 in a slow year. LLC SE tax: $8,283. LLC federal: $4,600 (after deductions). LLC total: $12,883. S-Corp on $58,000 salary leaves only $2,562 distribution after employer FICA. S-Corp payroll: $8,874. Federal: roughly $5,200. S-Corp overhead: $2,200. Total: $16,274. LLC wins by $3,400. The fixed S-Corp overhead eats the SE tax savings on a small distribution. Lesson: once income drops below the break-even, S-Corp is paying tax on the privilege of complexity.
Variation: Maya's spouse takes a $90,000 W-2 job and they file jointly. Now their household gross is $115K business + $90K spouse = $205K. Federal brackets shift up (MFJ 22% bracket extends further than single). LLC total: $39,210. S-Corp total: $36,140. S-Corp still wins by $3,070. The marginal tax rate increase from the spouse's income raises both numbers equally, so the savings stay roughly the same.
State-by-state variations
Federal S-Corp savings are uniform — the SE tax savings on distributions work the same in all 50 states. State-level S-Corp treatment varies significantly, and four states actively erode the federal benefit.
California: $800/year minimum franchise tax (applies to LLCs too, but S-Corps additionally owe 1.5% of net income with $800 minimum — total $800 for businesses under $53K, scaling up after). On $115K net income, California's S-Corp adds $1,725 in state-level S-Corp tax. The federal $3,000 savings shrinks to $1,275. Still worth electing for most CA filers above $80K, but the margin is thinner than the calculator shows.
New York City: NYC taxes S-Corps as C-Corps with no flow-through benefit at the city level — owners pay corporate income tax (8.85% top rate) at the entity level AND personal income tax on distributions. For NYC residents earning above $80K net, S-Corp election typically costs more than it saves. New York State proper (outside NYC) does respect the S-Corp election with no additional surcharge.
Illinois: 1.5% replacement tax on S-Corp income, in addition to personal Illinois income tax (4.95% flat). On $115K, that's $1,725 extra at the state level. The federal savings of $3,000 still nets positive, but the margin shrinks.
Tennessee: 6.5% excise tax on S-Corp net earnings plus a separate franchise tax. The federal savings rarely outweigh Tennessee's state-level penalty. Most TN filers stay LLC.
Nine zero-income-tax states (Texas, Florida, Nevada, Tennessee, Washington, Wyoming, South Dakota, Alaska, New Hampshire) have no state income tax to layer onto either entity. The federal-only comparison is what matters — but Tennessee's separate S-Corp excise tax means Tennessee still penalizes S-Corp election even without an income tax. Wyoming and Florida are the cleanest jurisdictions for S-Corp election.
State-level reasonable-salary scrutiny varies. California's Franchise Tax Board independently audits reasonable compensation. Most other states defer to IRS classification. If you're in CA, set salary slightly higher than you'd otherwise pick to avoid a state-level dispute even if you're comfortable with your IRS position.
Related resources
For the broader business-formation context: Business Startup Checklist walks through structure choice, state registration, EIN, banking, and first-year tax setup. Small Business by State shows LLC filing fees, annual report requirements, and state-level taxes across all 50 states. For the related tax calculations: Income Tax Calculator (federal + state brackets for any income level), Paycheck Calculator (translates salary into bi-weekly take-home for setting your S-Corp owner salary). For forms you'll file: W-9 (give to your clients before they can pay you), 1099-NEC and 1099-MISC (issue to contractors you pay $600+). The IRS S-Corporations resource page is the authoritative starting point for federal rules; Form 2553 is the actual election form.