S-Corp Election

S-Corp Tax Savings Calculator

See exactly how much self-employment tax you could save by electing S-Corp status. Updated for 2025 FICA rates.

Not tax advice. This calculator estimates potential SE tax savings using 2025 FICA rates (15.3% combined, 12.4% SS + 2.9% Medicare). Actual savings depend on your specific facts, state taxes, and IRS reasonable salary determination. Consult a CPA before making any S-Corp election.

Your Numbers

Your Schedule C net profit or LLC taxable income before any S-Corp salary

IRS requires a “reasonable salary” for your role. Rule of thumb: 40%–60% of net income. Consult a CPA.

Tax Comparison

LLC / Sole Prop SE Tax$13,049
S-Corp Payroll Tax (FICA on salary)$9,180
Annual Tax Savings$3,869
Est. Annual Compliance Cost−$2,000
Net First-Year Savings$1,869
$1,869
Estimated net first-year savings

How this is calculated

LLC self-employment taxNet income × 92.35% × 15.3% = $13,049
(The 92.35% factor = net of employer-side deduction)
S-Corp payroll taxSalary ($60,000) × 15.3% (employee + employer FICA) = $9,180
Distribution (not subject to FICA)$40,000 passes through tax-free of self-employment tax

How the S-Corp tax savings work

LLC / Sole Proprietor (default)

As a sole prop or single-member LLC, 100% of your net business income is subject to self-employment tax (15.3% up to $176,100, then 2.9% above). On $100K net income, that is approximately $14,130 in SE tax — before any income tax.

S-Corp election

By electing S-Corp status, you split income into (1) a W-2 salary and (2) a distribution. FICA (15.3%) applies only to the salary. The distribution passes through free of SE tax — saving 15.3% on that portion of income.

Example: $100K net income, $60K salary

TaxLLC (no S-Corp)S-CorpDifference
Self-Employment / FICA tax$14,130$9,180−$4,950
Annual compliance cost$0$2,000+$2,000
Net first-year savings——$2,950

Figures use 2025 rates. SS wage base $176,100. Compliance cost is an estimate.

S-Corp FAQ

How does an S-Corp save taxes?
An S-Corp saves self-employment tax by splitting income between a W-2 salary and distributions. FICA (15.3%) applies only to the salary. Distributions pass through free of self-employment tax, saving 15.3% on that portion. At $100K net income with a $60K salary, this saves approximately $4,950 in FICA before compliance costs.
What is a reasonable salary for an S-Corp owner?
The IRS requires S-Corp owner-employees to pay themselves a 'reasonable salary' for services rendered. Many CPAs use 40%–60% of net income as a guideline. The IRS considers industry pay norms, the business's financial condition, and comparable wages. An audit can reclassify distributions as wages if the salary is deemed too low.
When does an S-Corp election make financial sense?
S-Corp elections generally make sense when annual net income exceeds $40,000–$50,000 and the annual tax savings exceed compliance costs ($1,500–$3,000). Below that threshold, savings are minimal and the administrative burden often outweighs benefits.
What are the ongoing costs of an S-Corp?
Ongoing S-Corp costs typically include: payroll service ($500–$1,200/year), state annual filing fees ($100–$800 depending on state), additional tax prep for Form 1120-S ($500–$1,500), and state franchise taxes if applicable. This calculator uses a conservative $2,000 estimate.
How do I elect S-Corp status?
For an existing LLC, file IRS Form 2553 within 75 days of the tax year start (or any time during the prior year). For a new entity, file within 2 months and 15 days of formation. Late election relief is available in some circumstances. Consult a CPA to confirm deadlines.

Ready to make the S-Corp election?

A CPA familiar with S-Corp elections can verify your reasonable salary and handle Form 2553. Services like Thumbtack and Bark connect you with local CPAs.

Find a CPA →

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