LLC vs S-Corp Tax Savings Calculator
Example: Annual business net profit: 120000 $ · Reasonable salary to pay yourself: 60000 $
| Estimated SE tax savings | $7,775 |
| LLC self-employment tax | $16,955 |
| S-corp payroll tax (on salary) | $9,180 |
| Amount taken as distribution | $60,000 |
Worked example
On $120,000 of net profit, a default LLC pays 15.3% self-employment tax on 92.35% of it, about $16,955. Electing S-corp and paying yourself a $60,000 reasonable salary means the 15.3% FICA applies only to that salary, about $9,180, while the remaining $60,000 comes out as a distribution free of self-employment tax. The estimated saving is roughly $7,775 a year, before the cost of running payroll and filing the extra return.
Frequently asked questions
What is a reasonable salary?
The IRS requires S-corp owner-employees to pay themselves a salary that reflects the fair market value of the work they do. Setting it too low to dodge payroll tax invites an audit. Base it on what you would pay someone else to do your job.
Does the S-corp election have downsides?
Yes. You must run formal payroll, file a separate corporate return, and often pay for a bookkeeper or accountant. Those costs can offset the savings until profit is high enough, commonly cited as somewhere north of $40,000 to $80,000 in net profit.
Is an S-corp a different entity than an LLC?
No. S-corp is a tax election, not a legal structure. An LLC can elect to be taxed as an S-corp while remaining an LLC legally. That is what this calculator compares.
Does this replace a tax professional?
No. This is a simplified estimate of the self-employment-tax difference only. State taxes, deductions, the qualified business income deduction, and payroll costs all matter. Confirm with a CPA before electing.