Sole Proprietor vs LLC vs S-Corp Tax Calculator 2026
Compare taxes across all three structures: sole prop, single-member LLC, and LLC with S-Corp election. Find when S-Corp election saves money and your breakeven point.
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Quick:
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IRS expects 40β60% of net profit
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Payroll + 1120-S filing ($1,500β$3,000 typical)
Sole Proprietor
$16,955
SE Tax
$16,955
Total Tax Burden
Single-Member LLC
$16,955
SE Tax (same as SP)
$16,955
No Tax Change
LLC + S-Corp Election
$7,650
FICA on Salary
$9,650
FICA + Compliance
$7,305
Net Annual Savings (S-Corp vs Sole Prop)
$9,305
Gross SE Tax Savings
$66,200
Tax-Free Distributions
2.6 mo
Compliance Payback
The Key Insight: LLC Alone = Zero Tax Savings
| Structure | SE Tax / FICA | Compliance | Net Extra Tax | Liability Protection |
|---|---|---|---|---|
| Sole Proprietor | $16,955 | $0 | $16,955 | None |
| Single-Member LLC | $16,955 | ~$50β200 | $16,955 | Yes |
| LLC + S-Corp Election | $7,650 | $2,000 | $9,650 | Yes |
| S-Corp saves vs LLC/Sole Prop | $7,305 | |||
Why a Single-Member LLC Doesn't Change Your Taxes
This is one of the most common misconceptions among self-employed business owners. By default, the IRS treats a single-member LLC as a "disregarded entity" β meaning it doesn't exist for tax purposes. All income flows through to Schedule C, exactly like a sole proprietorship.
The SE Tax Formula
SE Tax Base = Net Profit Γ 92.35% (accounts for employer deduction)
SS Tax = min(SE Base, $176,100) Γ 12.4%
Medicare Tax = SE Base Γ 2.9%
Total SE Tax = SS Tax + Medicare Tax
SS Tax = min(SE Base, $176,100) Γ 12.4%
Medicare Tax = SE Base Γ 2.9%
Total SE Tax = SS Tax + Medicare Tax
S-Corp Election Savings Formula
FICA on Salary = min(Salary, $176,100) Γ 12.4% + Salary Γ 2.9%
Gross Savings = SE Tax β FICA on Salary
Net Savings = Gross Savings β Annual Compliance Cost
Gross Savings = SE Tax β FICA on Salary
Net Savings = Gross Savings β Annual Compliance Cost
Extended
S-Corp Election Timeline & Compliance Cost Analysis
Annual savings at every income level β find your breakeven and the optimal year to make the election
When to Make the S-Corp Election
The table below shows net savings at different profit levels (assuming 40% salary ratio and your entered compliance cost). Make the election when annual savings substantially exceed compliance costs.
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| Net Profit | SE Tax (Sole Prop) | FICA (S-Corp) | Gross Savings | Net After Compliance | Election? |
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S-Corp Election Timeline
- By March 15, 2026: File Form 2553 for S-Corp treatment retroactive to January 1, 2026
- Any time during 2026: File Form 2553 for S-Corp treatment starting on that date
- By March 15, 2027: File for retroactive 2026 election (late election relief under Rev. Proc. 2013-30)
- Required first step: Have an active LLC or corporation formed β you cannot elect S-Corp without an entity
Frequently Asked Questions
Does forming an LLC change my taxes?
No β a single-member LLC is a "disregarded entity" by default. The IRS taxes it identically to a sole proprietorship: all net profit flows to Schedule C and is subject to full self-employment tax (15.3% on net earnings). The LLC provides liability protection, but zero tax benefit on its own.
What is the S-Corp election and how does it reduce taxes?
An LLC can elect to be taxed as an S-Corporation by filing Form 2553. Under S-Corp treatment, you pay yourself a reasonable salary (subject to FICA payroll tax) and take remaining profit as distributions β which are NOT subject to self-employment or payroll taxes. This splits income between taxed and untaxed payroll.
At what profit level should I consider the S-Corp election?
The S-Corp election typically becomes cost-effective at $60,000β$80,000 in annual net profit. Below this, the annual compliance costs ($1,500β$3,000 for payroll service + 1120-S tax return) often exceed the SE tax savings. This calculator shows your specific breakeven point.
What is a reasonable salary for S-Corp purposes?
The IRS requires S-Corp owner-employees to pay themselves a "reasonable compensation" comparable to what they would pay an employee for the same work. Courts and the IRS have generally accepted 40β60% of net profit as reasonable. Paying zero salary or an artificially low salary is a major audit red flag.
What are the ongoing compliance requirements for an S-Corp LLC?
An LLC taxed as S-Corp must: run payroll and file quarterly Form 941, issue a W-2 at year-end, file Form 1120-S annually (S-Corp return, due March 15), and issue Schedule K-1 to shareholders. Estimated annual compliance cost: $1,500β$3,000 with a payroll service and CPA.