Entity Structure · 2026 IRS Rates
Compare total tax cost as an LLC versus an S-Corp election: SE tax, payroll tax, income tax, and net take-home. Based on 2026 federal rates.
Want the full rules, examples, edge cases, and planning context behind this calculation? Read the companion guide.
Read the LLC vs S-Corp Guide →This LLC vs S-Corp calculator compares total tax as an LLC versus an S-Corp election for 2025 and 2026 and shows your breakeven point. An S-Corp saves SE tax on profits distributed above your reasonable salary, avoiding the 15.3% SE/payroll tax on that portion. The savings are real but require annual payroll and a separate Form 1120S (typically $2,000–$5,000/year overhead). S-Corp elections are generally worthwhile when net profit exceeds $60,000–$80,000 above a reasonable salary.
| Item | LLC (Default) | S-Corp Election |
|---|---|---|
| SE / payroll tax base | All net profit | Reasonable salary only |
| SE / payroll tax rate | 15.3% of 92.35% | 15.3% of salary only |
| Distribution (K-1) | Subject to SE tax | Income tax only |
| SS wage base (2026) | $184,500: applies to both salary and LLC SE income | |
| QBI deduction base | Net income minus SE deduction | K-1 distributions only |
| Annual compliance cost | Low ($0–$500) | $2,000–$5,000 typical |
| Federal election form | N/A | Form 2553 |
| Typical breakeven profit | $40,000–$60,000 above reasonable salary | |
LLC scenario: SE tax is computed on 92.35% of net income. The 50% SE deduction reduces AGI. If QBI-eligible, 20% of (net income minus SE deduction) is deducted from taxable income. 2026 federal income tax brackets are then applied.
S-Corp scenario: The owner pays FICA (15.3%) only on the reasonable salary. The employer's share (7.65%) is deductible at the entity level, reducing the K-1 distribution. If QBI-eligible, 20% of distributions is deducted (W-2 salary does not qualify for QBI). Income tax brackets are applied to salary plus distribution.
Compliance cost is added to the S-Corp total cost (not to taxes) to show the true economic comparison. The default is $3,000/year. Adjust to match your actual payroll processing and Form 1120S preparation fees.
Breakeven: The S-Corp wins when gross SE tax savings exceed annual compliance cost. At $3,000 overhead and a 15.3% SE rate, the distribution above salary must exceed approximately $21,300 before the S-Corp saves money net of costs.
To understand the LLC baseline, see our Self-Employment Tax Guide and the 1099 Tax Calculator. For a full explanation of the S-Corp election mechanism, reasonable salary requirements, compliance costs, and the breakeven analysis, see the LLC vs S-Corp Guide.
| Factor | LLC (Default) | S-Corp Election |
|---|---|---|
| SE / Payroll Tax Base | 100% of net profit | Reasonable salary only |
| Distributions Above Salary | Subject to SE tax | Income tax only; no SE tax |
| QBI Deduction | 20% of net income minus SE ded. | 20% of distributions only |
| Annual Tax Return | Schedule C or K-1 | Form 1120S (separate) |
| Payroll Required | No | Yes: W-2 for owner |
| Annual Compliance Cost | Low ($0–$500) | $2,000–$5,000+ |
| Best For | Profit under ~$50k–$60k | Profit $70k+ above salary |
Net profit: $160,000. QBI-eligible business. Reasonable S-Corp salary: $70,000. Estimated annual compliance cost (payroll processing + Form 1120S): $3,000.
Net S-Corp advantage at $160,000 profit: approximately $4,400 after compliance costs. Moving $84,645 out of payroll tax reach as a K-1 distribution is the source of the savings. These are estimates. Actual results depend on final 2026 bracket adjustments, state tax, and individual deductions. For the full breakeven analysis, see the LLC vs S-Corp Guide.
At LMN Tax Inc., we run this comparison every year for clients approaching $40,000 in net profit. The S-Corp election reduces SE tax but adds payroll compliance costs. Below $50,000 net, payroll processing fees often eliminate the tax savings entirely. Above $80,000, the math reliably favors S-Corp election. The breakeven point shifts if the client operates in a state with a franchise tax or minimum annual fee on S-Corps. California's $800 minimum S-Corp franchise fee and 1.5% S-Corp franchise tax meaningfully change the breakeven — most California-based clients need $100,000 or more in net profit before an S-Corp election is net-positive.
Reasonable salary is the most common audit trigger for S-Corp clients. The IRS compares the owner's W-2 to Bureau of Labor Statistics wage data for the same occupation. We document the salary rationale in writing every year: what comparable employees in the same role earn, why the chosen figure is defensible, and how it was calculated. A low salary that saves $3,000 in payroll taxes is not worth an audit that costs $8,000 or more to defend, depending on complexity.
Timing the election matters. Form 2553 must be filed within 2 months and 15 days of the start of the tax year for the election to take effect that year. Most clients who come to us mid-year miss the window. The IRS does grant late election relief in some circumstances, but it requires a reasonable cause explanation and additional paperwork. File Form 2553 at the start of January if you want the election to apply for the full year.
If the calculator shows S-Corp savings: the next step is filing Form 2553 with the IRS. File within 2 months and 15 days of January 1 for the election to take effect for the current year. Then set up payroll for the owner salary amount, run quarterly payroll tax deposits (Form 941), and engage a CPA or enrolled agent to prepare Form 1120S at year-end. See the Business Tax Deadlines guide for the complete S-Corp filing calendar.
For a deeper view of the dollar savings at your specific income level, run the S-Corp Savings Calculator with your net profit and salary inputs.
If the calculator shows S-Corp costs more: stay as LLC. Recalculate each year as income grows. The threshold typically shifts between $50,000 and $80,000 in net profit above a reasonable salary, depending on your specific compliance costs and state tax situation.
The savings figure shown is a federal estimate only. Before electing S-Corp, verify your state's treatment: check whether your state has an S-Corp franchise tax, minimum annual fee, or separate filing requirement that would reduce or eliminate the federal savings. Your actual decision should be reviewed with a tax professional who knows your state.