LLC vs S-Corp: Tax Savings Calculator & Guide
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Choosing between LLC and S-Corp is one of the most impactful tax decisions you'll make.
The Key Difference
Sole proprietor: 15.3% SE tax on ALL net profit. S-Corp: SE tax only on your reasonable salary. Distributions are exempt from SE tax.
When S-Corp Saves Money
Breakeven: $60,000-80,000 net profit. Below this, compliance costs (payroll, separate tax return) exceed savings. Above $100K, savings accelerate.
Example: $120,000 Net Profit
Sole proprietor SE tax: ~$16,955. S-Corp ($70K salary): SE tax ~$9,891. Annual savings: $7,064. Over 10 years: $70,640.
S-Corp Requirements
Form 2553, payroll (Gusto/QuickBooks), Form 1120S, reasonable salary documentation, quarterly payroll filings, annual W-2.
Use our LLC vs S-Corp optimizer to calculate your exact savings.
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Frequently Asked Questions
What is a reasonable salary?
IRS requires pay comparable to what you'd pay someone to do your job. Typically 40-60% of net profit for service businesses.
Can I switch mid-year?
File Form 2553 by March 15 for full-year effect. Late election relief available with reasonable cause.
Does LLC alone reduce SE tax?
No. LLC provides liability protection only. You must elect S-Corp or C-Corp to change tax treatment.