S-corp savings calculator

How the calculation works — and an important caveat

As a sole proprietor, you pay SE tax (15.3% × 92.35%) on your entire net profit. As an S-corp shareholder-employee, you pay FICA (also 15.3%, combined employer + employee) on your salary only; the remaining profit is distributed without FICA. The saving is the difference in payroll/SE tax on the amount between your salary and your total profit.

The annual cost of the election — payroll service fees plus the additional accounting cost of filing a corporate return — reduces the saving. This calculator shows whether the net is positive.

Important caveat: "Reasonable salary" is an IRS facts-and-circumstances standard, not a formula. The IRS requires that shareholder-employees receive compensation commensurate with their role. Paying yourself too little is the most common reason S-corp elections get scrutinised in an audit. This tool doesn't tell you what your reasonable salary should be — only the tax effect of the salary you enter. Consult a CPA before electing.

Worked example

A single-member LLC with $150,000 in net profit, paying itself a $70,000 reasonable salary, with $600/year in payroll service costs and $800/year in additional accounting:

At $50,000 profit with a $45,000 salary, the distribution above the salary ($5,000) saves only about $765 in SE tax — less than the $1,400 in annual overhead. At that level, the election doesn't pay for itself. The break-even profit level shown by the calculator is the point where savings exactly match the cost of running the S-corp.

Assumptions and limitations

• This models ongoing annual costs only. One-time setup costs — state S-corp election filing, potential LLC-to-corporation conversion, initial CPA consultation — are not included.
• State-level S-corp fees, franchise taxes (such as California's minimum $800 franchise tax), and additional state reporting requirements are not modeled.
• The salary is capped at net profit internally — you can't pay yourself more than the business earns. The calculator handles this automatically.
• This does not account for the QBI deduction, which can reduce a sole proprietor's income tax by up to 20% of qualified business income and partially narrows the advantage of an S-corp election.

Frequently asked questions

How do I know what a reasonable salary is?

The IRS looks at what the business would pay an arm's-length employee doing the same work. Common benchmarks: Bureau of Labor Statistics occupational pay data, industry salary surveys, and what your business actually generates in a similar role. A CPA familiar with your industry can give you a defensible number.

At what profit level does an S-corp election usually make sense?

A common rule of thumb is $60,000–$80,000 in net profit, but the real answer depends on your salary ratio and your state's fees. Use this calculator with your actual numbers and consult a CPA for the final decision.

Does this include the QBI deduction?

No. The QBI deduction (up to 20% of qualified business income) is available to both sole proprietors and S-corp shareholders. It partially reduces the income tax advantage an S-corp might otherwise have from salary splitting. A full QBI analysis is beyond the scope of this tool — ask a CPA.