Corporation Tax Calculator

As a sole proprietor, your entire net profit is subject to self-employment tax (15.3% on the first $176,100, 2.9% above that). With an S Corp, you only pay payroll taxes on your W-2 salary — the remaining profit taken as distributions is generally exempt from self-employment tax. This difference can save thousands per year for profitable businesses.

S Corp status tends to make financial sense once your net business profit consistently exceeds $40,000–$50,000 per year. Below that threshold, the added costs of maintaining payroll, filing a separate S Corp tax return, and annual compliance fees may outweigh the tax savings. Use this calculator to see where you stand.

The IRS requires S Corp owners to pay themselves a 'reasonable salary' for the work they perform. Deliberately setting an artificially low salary to avoid payroll taxes is a red flag for audits. A reasonable salary is typically benchmarked against what you'd pay an employee doing the same job in your industry.

Yes. S Corp profits pass through to owners and are reported on your personal income tax return (Schedule E). The S Corp tax savings come from reducing self-employment (payroll) taxes — not from avoiding income tax altogether. You still owe federal and state income tax on both your salary and distributions.

Self-employment tax covers Social Security (12.4%) and Medicare (2.9%), totaling 15.3% on net earnings up to the Social Security wage base ($176,100 for 2025). Above that threshold, only the 2.9% Medicare tax applies, plus an additional 0.9% for very high earners. Employees split this cost with their employer, but self-employed individuals pay the full amount.

Common annual S Corp costs include payroll service fees ($500–$1,500/year), a separate Form 1120-S tax return preparation ($500–$2,000), and state filing/franchise fees that vary by state. This calculator uses an approximate $2,000 annual compliance cost when you choose to include S Corp costs in the net savings estimate.

An S Corp can have multiple shareholders, but each owner who works in the business must be paid a reasonable salary. The tax savings calculation becomes more complex with multiple owners, as each person's salary and share of distributions affects the overall payroll tax burden. Consult a CPA for multi-owner scenarios.

You can elect S Corp tax treatment for your LLC by filing IRS Form 2553. The election must generally be filed by March 15 of the tax year you want it to take effect (or within 75 days of forming a new entity). Your LLC retains its legal structure but is taxed as an S Corp. A tax professional can help ensure the filing is done correctly and on time.