When should I switch to S-Corp?

Generally when your net profit exceeds $60K-80K. The savings on self-employment tax start to outweigh the additional payroll and compliance costs.

What is a reasonable salary for S-Corp?

The IRS requires a salary comparable to what you'd pay someone to do your job. Typically 40-60% of profit for service businesses.

S-Corp saves on self-employment tax on distributions. If you take a $70K salary with $50K in distributions, you save 15.3% on that $50K ($7,650).

Generally when your net profit exceeds $60K-80K. The savings on self-employment tax start to outweigh the additional payroll and compliance costs.

The IRS requires a salary comparable to what you'd pay someone to do your job. Typically 40-60% of profit for service businesses.

S-Corp saves on self-employment tax on distributions. If you take a $70K salary with $50K in distributions, you save 15.3% on that $50K ($7,650).

Compare sole proprietorship vs S-Corporation tax treatment. Find out exactly how much you could save.

Annual Net Profit ($)

Reasonable Salary ($)

Typically 40-60% of profit

State

SE Tax$16,955.46

Total Tax$30,477.85

Effective Rate25.4%

SE Tax (on salary)$9,890.69

Total Tax$26,621.17

Effective Rate22.2%

🏆 S-Corporation Saves You

$3,856.68/year