LLC vs S Corp Tax Calculator
A default LLC and an LLC taxed as an S corporation are the same legal entity paying tax two different ways. The calculator runs both on your own profit and reports the difference after payroll costs and the QBI deduction.
At $120,000 of profit with a $60,000 salary, the default LLC pays $28,462 in federal tax and the S-corp route costs $24,291 all-in — a difference of $4,171 a year.
How it's calculated
The comparison is narrower than it first appears, because the two options are not different entities. An LLC is a legal structure; S-corp is a tax election that an LLC can make while remaining an LLC. Liability protection, your operating agreement, and state registration do not change. What changes is how profit is taxed.
Under default taxation, a single-member LLC is a disregarded entity: profit goes on Schedule C, and all of it is subject to self-employment tax at 15.3% of 92.35%. The arrangement is simple, needs no payroll, and costs nothing extra to run.
Under an S-corp election, the LLC files Form 1120-S, pays you a W-2 salary, and passes the remaining profit to you on a K-1. Payroll tax applies only to the salary. In exchange you take on real payroll obligations and a separate business return.
The calculator prices all of it, including the two offsets that decide most cases. The first is the QBI deduction: wages are not qualified business income, so salary shrinks the §199A base. At $120,000 of profit the forfeited deduction is $8,242 against $7,775 of payroll tax avoided — the election still wins once income tax is worked through, but the gross figure alone would have overstated it badly. The second is payroll cost, which recurs annually whether or not the business has a good year.
There is also a non-tax difference worth weighing. Paying yourself a salary reduces the earnings on which Social Security credits accrue, which matters at the margins for future benefits, and it makes personal borrowing simpler because a W-2 is easier for lenders to underwrite than a Schedule C.
Where the answer lands depends more on the salary than on the profit. Hold salary at half of profit and the election clears $1,000 a year of net benefit at around $35,000 of profit. Hold it at 60% and the threshold moves to roughly $52,000. For a business whose revenue is entirely the owner's own billable time — where a defensible salary is close to all of the profit — the election may never pay. Our LLC vs S corp comparison covers the non-tax differences, and the reasonable salary calculator covers the number this all turns on.
A worked example
A designer's LLC earns $120,000 of profit. Taxed by default, she pays $16,955 of self-employment tax and $11,506 of federal income tax after a $19,084 QBI deduction — $28,462 in total.
Electing S-corp treatment with a $60,000 salary, she pays $9,180 of payroll tax across both halves, and her QBI deduction falls to $10,842 because only the $54,210 distribution counts as qualified business income, which raises her income tax to $13,911.
Adding $1,200 of payroll costs brings the S-corp route to $24,291. The election saves $4,171 — real money, but 46% less than the $7,775 of payroll tax avoided would have suggested.
Common mistakes to avoid
- Treating LLC and S-corp as competing entity types. S-corp is a tax election an LLC can make; the legal entity and its liability protection do not change.
- Comparing only payroll tax. The QBI deduction moves in the opposite direction, and at moderate profit the forfeited deduction can exceed the payroll tax avoided.
- Leaving payroll costs out of the comparison. A payroll service plus a separate Form 1120-S recurs every year, in bad years as well as good.
- Assuming state treatment matches federal. Several states tax S corporations directly or impose franchise fees, which can erase a modest federal saving entirely.
- Forgetting the effect on Social Security. A lower salary means lower earnings on record, which reduces the benefit base for later retirement.
Frequently asked questions
Is an LLC or S corp better for taxes?
Neither is inherently better; it depends on your profit and the salary you can defend. A default LLC pays self-employment tax on all profit but keeps the full QBI deduction and costs nothing to run. An S-corp election shelters the distribution from payroll tax but shrinks the QBI deduction and adds payroll costs. At $120,000 of profit with a $60,000 salary the election saves about $4,171 a year; at $90,000 with a $70,000 salary it costs $1,530.
Can an LLC be taxed as an S corp?
Yes, and that is the usual route for a one-person business. S-corp is a tax election rather than an entity type, so an LLC files Form 2553 and continues to exist as an LLC for legal purposes. You keep the simpler LLC formalities and change only how profit is taxed — the liability protection, operating agreement, and state registration are unaffected.
How much profit do I need before an S corp is worth it?
Around $35,000 of profit if you hold salary at half of profit, and about $52,000 at a more conservative 60% salary — measured as the point where the net saving clears $1,000 a year. Below that, payroll costs and the forfeited QBI deduction outweigh the payroll tax avoided. State franchise or S-corp taxes, which this calculator excludes, push the real threshold higher.
Does an S corp election affect my Social Security?
Yes. Social Security benefits are based on your earnings record, and only the salary counts — distributions do not. Paying yourself a lower salary reduces the earnings on record and can lower your eventual benefit. For someone many years from retirement the effect is small relative to the annual tax saving, but it is a genuine cost rather than a free lunch.
What extra paperwork does an S corp require?
Real payroll — withholding, remitting, and filing employment tax returns — plus a separate business return on Form 1120-S and a K-1 issued to yourself. Most owners use a payroll service and a preparer for the 1120-S, which is where the recurring cost comes from. The election itself is made on Form 2553, due no more than two months and 15 days after the start of the tax year it takes effect.
Sources
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