S-Corp vs LLC Tax Calculator
Compare tax savings between S-Corporation and LLC business structures with accurate 2025 tax calculations.
Business Details
Tax Comparison Results
What is an S-Corp vs LLC Tax Calculator?
An S-Corp vs LLC Tax Calculator is a free financial tool that compares the tax implications of operating your business as an S-Corporation versus an LLC (taxed as a sole proprietorship or partnership). It calculates self-employment tax, payroll tax, federal income tax, and the QBI deduction to determine potential tax savings.
This calculator is essential for:
- Business owners deciding between S-Corp and LLC structures
- Self-employed professionals looking to minimize tax liability
- Entrepreneurs evaluating the financial impact of S-Corp election
- Tax planners analyzing optimal business structure for clients
Understanding federal tax obligations is crucial - use our Federal Income Tax Calculator to estimate your personal income tax liability.
Planning for retirement while minimizing taxes? Check our 401(k) Tax Savings Calculator to maximize retirement contributions.
Self-employed? Our Payroll Tax Calculator helps you understand employment tax obligations.
How the S-Corp vs LLC Tax Calculator Works
The calculator uses 2025 IRS tax rules to compare two scenarios:
LLC (Default Taxation):
- Self-Employment Tax = Net Profit × 92.35% × 15.3%
- QBI Deduction = Qualified Business Income × 20%
- Federal Tax = Based on 2025 tax brackets
- Total Tax = SE Tax + Federal Tax
S-Corporation:
- Payroll Tax = Salary × 15.3% (on salary only)
- Distributions = Net Profit - Salary - Employer Taxes
- QBI Deduction = Distributions × 20%
- Federal Tax = Based on 2025 tax brackets
- Total Tax = Payroll Tax + Federal Tax
Key 2025 Tax Parameters:
- Social Security Tax = 12.4% on first $170,400
- Medicare Tax = 2.9% on all income
- Additional Medicare = 0.9% over $200k/$250k
- QBI Deduction = Up to 20% with income thresholds
Key Concepts Explained
Self-Employment Tax
The 15.3% tax (Social Security + Medicare) that self-employed individuals pay on business income. LLCs pay this on all profit, while S-Corps only pay payroll tax on salary.
Reasonable Compensation
IRS requires S-Corp owners to pay themselves a reasonable salary for services performed. Typically 40-60% of net profit, based on industry standards and job duties.
QBI Deduction
The Qualified Business Income deduction allows eligible businesses to deduct up to 20% of QBI. Subject to income limits and phase-outs above $197,300 (single) or $394,600 (married).
Distributions
S-Corp profits distributed to shareholders after paying salary and expenses. These are not subject to self-employment tax, creating the primary tax savings opportunity.
How to Use This Calculator
Enter Net Profit
Input your annual business net profit before any owner compensation (e.g., $100,000)
Set S-Corp Salary
Enter a reasonable salary for S-Corp (40-60% of profit recommended)
Select Filing Status
Choose Single or Married Filing Jointly for accurate tax calculations
Add Other Income
Include W-2 wages, spouse income, or other taxable income (optional)
Review Comparison
See side-by-side tax breakdown and potential S-Corp savings
Make Decision
Use results to determine if S-Corp election makes financial sense
Benefits of Using This Calculator
- • Accurate 2025 Tax Calculations: Uses current IRS tax brackets, Social Security wage base ($170,400), and QBI deduction rules for precise comparisons.
- • Instant Tax Savings Analysis: Immediately see potential savings from S-Corp election, helping you make informed business structure decisions.
- • Comprehensive Breakdown: Compare self-employment tax, payroll tax, federal income tax, and QBI deductions side-by-side for both structures.
- • Reasonable Salary Guidance: Built-in recommendations help ensure IRS compliance with reasonable compensation requirements.
- • Free and Unlimited Use: No registration required, calculate unlimited scenarios to find your optimal business structure.
- • Decision Support: Provides clear financial data to discuss with your CPA or tax advisor when considering S-Corp election.
Factors That Affect Your Results
1. Business Net Profit Level
S-Corp benefits typically appear above $60,000-$80,000 annual profit. Higher profits generally mean greater potential tax savings from the salary/distribution split.
2. Reasonable Salary Amount
Lower salaries increase savings but must remain reasonable per IRS guidelines. Setting salary too low can trigger audits and penalties. Industry standards matter.
3. Filing Status and Income
Married filing jointly has higher standard deductions and different tax brackets than single filers, affecting overall tax calculations and QBI deduction phase-outs.
4. QBI Deduction Eligibility
Income above $197,300 (single) or $394,600 (married) faces QBI deduction limitations. Specified service businesses may lose the deduction entirely above these thresholds.
5. Administrative Costs
S-Corps require payroll processing, additional accounting, and compliance costs ($1,000-$3,000/year) that reduce net tax savings. Factor these into your decision.
6. State Tax Implications
Some states impose additional S-Corp taxes or don't recognize S-Corp election. State-specific rules can significantly impact overall tax savings beyond federal calculations.
Frequently Asked Questions (FAQ)
Q: What is the main tax advantage of an S-Corp over an LLC?
A: The main tax advantage of an S-Corp is the ability to split income between salary (subject to payroll taxes) and distributions (not subject to self-employment tax). This can save significant money on Social Security and Medicare taxes, potentially 15.3% on the distribution portion.
Q: What is reasonable compensation for an S-Corp owner?
A: The IRS requires S-Corp owners who work in the business to pay themselves reasonable compensation for their services. This is typically what someone with similar experience and responsibilities would earn in the same industry. Generally, 40-60% of net profit is considered reasonable, but it depends on your specific situation.
Q: At what income level does S-Corp election make sense?
A: S-Corp election typically becomes beneficial when your business net profit consistently exceeds $60,000-$80,000 annually. Below this threshold, the administrative costs and complexity of running an S-Corp may outweigh the tax savings.
Q: What is the QBI deduction and how does it affect S-Corp vs LLC comparison?
A: The Qualified Business Income (QBI) deduction allows eligible businesses to deduct up to 20% of qualified business income. Both S-Corps and LLCs can benefit from this deduction, but it's calculated differently. For S-Corps, only the distribution portion (not salary) qualifies for QBI deduction.
Q: What are the 2025 Social Security and Medicare tax rates?
A: For 2025, the Social Security tax is 12.4% on wages up to $170,400, and Medicare tax is 2.9% on all wages. An additional Medicare tax of 0.9% applies to income over $200,000 (single) or $250,000 (married filing jointly). Self-employed individuals pay both the employee and employer portions, totaling 15.3%.
Q: Are there additional costs to operating as an S-Corp?
A: Yes, S-Corps have additional administrative costs including payroll processing fees, potential accounting fees, state filing fees, and the time/cost of maintaining corporate formalities. These costs typically range from $1,000-$3,000 annually, which should be factored into your tax savings analysis.