About the S-Corp vs LLC Calculator
Past roughly $60k of profit, every freelancer hears the same advice: “elect S-Corp, save thousands.” Sometimes true. The calculators pushing it almost always skip three things: the QBI deduction shrinks when you pay yourself a salary (clawing back part of the saving), the running costs recur every year (payroll service, a separate return, state entity taxes), and some states tax S-Corps like corporations, which reverses the answer entirely.
This tool does the whole federal computation on both sides — SE tax, FICA both halves, FUTA, the additional Medicare surtax, QBI with its 2026 thresholds and W-2 limit — from constants verified at source, and the engine passed 1,064 Node assertions including the published $14,129.55 SE tax on a $100,000 profit before it shipped.
The IRS factors: training and experience, duties and hours, comparable market pay, what the business can afford, payment history. Practitioner starting points by field (full-time; scale for part-time):
How to Use the S-Corp vs LLC Calculator
Enter your yearly profit, the salary you would defensibly pay yourself, your filing status, your state and the real running costs. The two columns compute the complete federal picture for each structure — self-employment tax or payroll taxes, income tax with the QBI deduction done properly on both sides, and the S-Corp’s recurring costs — then the headline tells you which wins at your numbers, by how much.
The Honest Shape of the Decision
An S-Corp election changes exactly one big thing: the 15.3% self-employment tax stops applying to the portion of profit you take as distributions instead of salary. Against that saving stand four costs that calculators love to skip: payroll service fees, a separate corporate return, state entity-level taxes, and the quieter one — your QBI deduction shrinks, because salary is not qualified business income. On mid-range profits the QBI clawback alone can take back a third of the headline saving.
Where the Numbers Come From
Tax year 2026, all verified at source: brackets and the standard deduction from IRS Revenue Procedure 2025-32; the $184,500 Social Security wage base from SSA; the QBI thresholds ($201,750 single, $403,500 joint, with the widened phase-in ranges) from OBBBA section 70105; SE tax structure from Schedule SE (15.3% on 92.35% of net profit); FUTA at the standard 0.6% effective rate on the first $7,000. The state entity costs are editable defaults with each state’s rule stated on the card.
What This Tool Does Not Decide
Taxes are one axis. An S-Corp also means running real payroll on a calendar, corporate formalities, slightly pricier bookkeeping, and — if your salary is aggressive — audit exposure on the reasonable-compensation question. It can also reduce the base for Social Security benefits and solo 401(k) contributions, both of which key off W-2 wages. The right way to read this page: if the saving is a few hundred dollars, it is not worth the apparatus; if it is five figures, talk to a CPA with this page open.
Related tools: the Quarterly Tax Calculator for estimated payments, the Contractor vs Employee Calculator for the W-2-versus-1099 fork, and the Freelance Rate Calculator for the revenue side. Browse every Freelance & Business tool for more.
Educational comparison, not tax advice. Federal only — state income tax is broadly similar under both structures and is excluded; state entity costs are included as editable defaults. The model assumes the standard deduction, no other household income, and salary within reasonable-compensation bounds. Your facts differ; a CPA should bless the election before you file Form 2553.
Frequently Asked Questions
Where do S-Corp savings actually come from?
One place: self-employment tax. A sole proprietor pays 15.3% (Social Security + Medicare) on 92.35% of the whole profit, up to the Social Security wage base. An S-Corp owner pays FICA only on the salary portion; distributions above it escape the 15.3%. Everything else — federal income tax on the whole amount, state income tax — is broadly the same either way. So the honest arithmetic is: 15.3% of the gap between profit and salary, minus payroll costs, minus state entity taxes, adjusted for what the QBI deduction does on each side.
What is the QBI interaction everyone skips?
The Section 199A deduction lets pass-through owners deduct 20% of qualified business income. Salary is NOT qualified business income — so paying yourself a salary shrinks the QBI base. On a $120,000 profit, electing S-Corp with a $60,000 salary can cut your QBI deduction by thousands, clawing back a chunk of the payroll-tax saving. Above the income thresholds ($201,750 single / $403,500 joint for 2026) it reverses: W-2 wages you pay yourself can preserve a deduction that would otherwise be limited. Calculators that ignore this overstate the savings for typical freelancers and understate them for high earners.
What counts as a reasonable salary?
What you would pay someone else to do the work you do — the IRS looks at training, duties, time, and comparable pay. There is no safe-harbor percentage, but a salary far below market for full-time work in your profession is the classic audit flag. The common practitioner starting points are 40–60% of profit or the market rate for your role, whichever is more defensible. Subscribers get sanity ranges by profession with the IRS factors listed.
What does running an S-Corp actually cost?
Recurring, every year: payroll service (roughly $500–800), a separate 1120-S corporate return (commonly $500–1,200 in prep fees), possibly higher bookkeeping standards, and state entity taxes — California charges 1.5% of net income with an $800 minimum, Tennessee and DC tax S-Corps like corporations, New York charges a fixed minimum. This tool prefills your state and lets you edit every cost, because the election only wins when the FICA saving clears all of it.
When does the S-Corp start winning?
For a typical single filer with ~$1,100 of running costs and no state entity tax, the crossover lands somewhere in the $60,000–$90,000 profit range depending on the salary split — below that the payroll costs and QBI clawback eat the saving. In California the $800 minimum plus 1.5% pushes it higher; in Tennessee or DC the entity-level tax usually erases it entirely. The break-even panel computes it for your actual inputs rather than quoting a folk number.
