LLC vs S-Corp Tax Savings Calculator

LLC vs. S-Corp: How to Know If the Switch Will Save You Money

At some point, almost every self-employed person or small business owner hears the same advice: “You should probably look into an S-Corp.” It usually comes from a CPA, an accountant friend, or a Reddit thread. The problem is nobody ever shows you the actual math for your specific situation.

That’s what this calculator does.

Why Your Tax Bill Is Higher as an LLC

When you run a business as a single-member LLC, the IRS treats every dollar of profit as your personal income. You pay the full 15.3% self-employment tax on all of it — the part your employer would normally cover if you had a regular job. On $100,000 in profit, that’s over $14,000 just in self-employment tax, before income tax even enters the picture.

An S-Corp splits that income into two buckets: a salary and a distribution. You pay payroll taxes on the salary. The distribution? No self-employment tax. That’s where the savings come from.

The Catch Nobody Talks About Up Front

You have to pay yourself a “reasonable” salary. The IRS is explicit about this — you cannot pay yourself $15,000 and take $135,000 as a distribution just to dodge payroll taxes. They audit for exactly this. A reasonable salary is roughly what you’d pay someone else to do your job, which typically works out to 40–60% of net income depending on your field.

The other catch is compliance costs. Running an S-Corp means running actual payroll, filing a separate business tax return (Form 1120-S), and usually paying a CPA more than you did before. That typically adds $2,000–$5,000 a year in costs. The calculator accounts for this — the “net savings” figure you see is after those costs are subtracted.

The Income Threshold That Actually Matters

Below about $60,000 in net business income, S-Corp election rarely makes financial sense. The tax savings are real but small, and the compliance costs wipe most of them out. Above $100,000, the math usually favors S-Corp clearly. At $150,000+, most business owners are leaving $5,000–$10,000 on the table every year by not making the switch.

The break-even point the calculator shows you is specific to your salary percentage and compliance costs — not a generic industry estimate.

One Thing Worth Knowing

Electing S-Corp status doesn’t mean dissolving your LLC and starting over. You file Form 2553 with the IRS and your existing LLC gets taxed as an S-Corp. Most small business owners take this route — it keeps the legal simplicity of an LLC while capturing the tax benefits of an S-Corp.

Run your numbers above, then take the result to a CPA before making any final decisions.