S-Corp vs C-Corp: Tax Comparison for Small Business 2026

Compare S-Corporation and C-Corporation tax structures — pass-through taxation, double taxation, salaries, and which structure fits your business.

By Muhammad AkbarLast reviewed October 24, 2026How we calculate

Pass-Through vs Double Taxation

S-Corps are pass-through entities: profits flow to your personal return and are taxed once at individual rates. C-Corps pay corporate income tax (21% federal) and shareholders pay tax again on dividends — the double taxation problem. For most small businesses, S-Corp wins on pure tax efficiency.

The Self-Employment Tax Angle

S-Corp owners pay SE tax only on their reasonable salary; distributions escape it. C-Corp owners pay themselves a salary (subject to FICA) and receive dividends (taxed at capital gains rates). Both avoid full SE tax on all profit, but C-Corp dividends face the second layer of corporate tax.

When C-Corp Makes Sense

C-Corps make sense for: businesses planning to raise venture capital, retain earnings for growth (corporate rates may beat individual rates), offer stock options, or go public. The 21% corporate rate plus qualified dividend rates can beat individual rates for high-reinvestment businesses.

Compliance Burdens

S-Corps file Form 1120S with a K-1 per owner. C-Corps file Form 1120, hold board meetings, maintain minutes, and face stricter corporate formalities. Both require payroll if the owner takes a salary. S-Corp compliance costs roughly $1,000-2,500/year; C-Corp $1,500-3,500/year.

Frequently Asked Questions

Which saves more tax: S-Corp or C-Corp?

For most small service businesses under $500K profit, S-Corp saves more because profits are taxed once. C-Corp wins when retaining large earnings in the business for growth, since the 21% corporate rate is lower than top individual brackets.

Can I convert from S-Corp to C-Corp?

Yes, by filing a revocation of the S election. Converting C-Corp to S-Corp is more complex — the built-in gains tax can apply for 5 years. Plan conversions with a CPA.

Do C-Corps pay self-employment tax?

No. C-Corp profits don't flow to your personal return, so no SE tax applies. Owner-employees pay FICA on salary (7.65% each from employer and employee) and capital gains tax on qualified dividends.

Sources

IRS Revenue Procedure 2025-32 — 2026 inflation adjustments — tax brackets, standard deduction, QBI thresholds.
IRS Schedule SE instructions — Self-employment tax: the 92.35% adjustment, the Social Security wage base, the Medicare surtax.
IRS Form 1040-ES — Estimated tax deadlines and the safe-harbour rules used for the quarterly schedule.
IRS Publication 334 — Tax guide for small business — deductible expenses and net profit.
IRS Social Security wage base — The $184,500 Social Security cap applied for 2026.

How these numbers are produced

Calculations follow the order of operations on the IRS forms themselves: net profit, the 92.35% adjustment, self-employment tax, the 50% deduction against AGI, the standard deduction, the §199A QBI deduction with its phase-out, then the federal brackets. State tax is computed separately on state AGI less that state's own standard deduction, because no state allows the federal QBI deduction and almost none allow the federal standard deduction.

What it does not cover. The calculators model a single filer or a married couple filing jointly with self-employment income as the main source. They do not model local income taxes, W-2 wages held alongside freelance work, itemized deductions, the alternative minimum tax, or credits. Where a local income tax exists, it is described on that state's page.

Not advice. SelfTaxCalc produces estimates, not tax advice. No one here is a CPA, an enrolled agent or a tax attorney, and nothing on this site creates a professional relationship. Estimates are a starting point for planning and for a conversation with a professional — they are not a substitute for one.