LLC vs S-Corp Savings Calculator

By default, a single-member LLC is taxed as a disregarded entity - meaning your business profit hits your personal return as self-employment income. All of it gets hit with the 15.3% self-employment tax (12.4% Social Security up to $168,600 in 2024, plus 2.9% Medicare with no cap).

When you file IRS Form 2553 to elect S-Corp taxation, the IRS treats you as an employee of your own business. You split your profit into two buckets:

• Reasonable salary - paid via real payroll. This portion gets hit with payroll tax (same 15.3%, just split between you-as-employer and you-as-employee).
• Distributions - the rest of the profit. These skip payroll tax entirely. You still pay income tax on them, just not self-employment tax.

That distribution portion dodging payroll tax is the savings. The bigger the gap between your total profit and your reasonable salary, the bigger the win.

The IRS is well aware that S-Corp owners are incentivized to pay themselves $1 and call the rest distributions. So the rule is: your salary must be reasonable for your role, industry, location, and the size of the business. Set it too low and you risk an audit, back-payroll-tax assessment, penalties, and interest.

There is no single formula the IRS publishes, but practitioners typically use one of these heuristics:

• 40-60% rule: Pay yourself 40-60% of profit as salary. This calculator highlights this range automatically.
• Comparable wage: What would a comparable role pay on the open market (Glassdoor, BLS data)?
• Replacement cost: What would it cost to hire someone to do your role?

For specific guidance on your situation, our Business Formation Copilot walks through the analysis with industry benchmarks.

S-Corp status comes with costs that a plain LLC does not have:

• Payroll service ($40-80/month, or $500-1,000/year): Gusto, ADP, or similar to run real payroll, file 941s, issue W-2s.
• S-Corp tax return (Form 1120-S): $400-1,500 from a CPA versus a free Schedule C on your 1040.
• Quarterly payroll filings (federal + state)
• Unemployment insurance in most states
• Workers comp in some states

This calculator bakes in a conservative $1,200/year overhead estimate. If your savings before overhead are under $1,500, the election is rarely worth the operational complexity.

For most consultants and freelancers:

• Under $50k profit: Stay as plain LLC. The overhead eats any savings.
• $50k-$80k profit: Marginal. Run the numbers carefully.
• $80k-$150k profit: S-Corp usually wins by $3k-$8k/year.
• $150k-$200k profit: Clear win - typically $7k-$12k/year in savings.
• Over $200k profit: Big win, but the marginal benefit per extra dollar of profit drops once your salary exceeds the SS cap ($168,600 in 2024).

Use the calculator to pressure-test these brackets with your actual numbers.

Stay as a plain LLC if:

• Your profit is under $50k and unlikely to grow soon
• You plan to reinvest most profit back into the business
• You want to contribute the maximum to a SEP-IRA (S-Corp limits SEP contributions more tightly)
• You operate in a state with steep S-Corp filing fees or franchise tax (California, for example, has a $800 minimum)
• You hate paperwork and have no interest in running payroll, even outsourced

Talk to a tax pro before filing Form 2553 - the election affects how you have to operate the business and is annoying to reverse.