2026 Tax Rates · FICA · Federal + State Income Tax

S-Corp vs. Sole Prop Tax Calculator

See exactly how much an S-Corp election could save you in self-employment taxes — after accounting for compliance costs and reasonable salary requirements.

Your Situation

$

After business expenses, before self-employment tax deduction

$20K$500K

IRS requires a "reasonable salary" for your work. Suggested: 50% of income ($50,000). Must be > $0 and ≤ your net income.

$
Salary: $50,000→Distribution: $50,000(50% of income)
💰

S-Corp saves $4,267/year

$5,767 gross FICA savings minus $1,500 compliance cost

📋 Sole Proprietor

Schedule C
Net income$100,000
SE tax (15.3% / 2.9%)−$14,130
SE deduction (50%)−$7,065
Federal income tax−$12,060
State income tax (~10.9%)−$10,900
Total Tax$37,089
Effective rate37.1%

🏢 S-Corporation

SAVES MORE
Salary ($50,000)$100,000
Employee FICA (salary only)−$3,825
Employer FICA (corp pays)−$3,825
Federal income tax−$12,773
State income tax (~10.9%)−$10,900
Annual compliance cost−$1,500
Total Tax + Costs$32,823
Effective rate32.8%

Summary

Gross FICA Savings

$5,767

Compliance Cost

$1,500

Net Annual Savings

$4,267

Break-Even Income

$25,000

How This Works

• Sole Prop SE tax: 15.3% on first $176,100 of net SE income × 92.35%, then 2.9% above that.

• S-Corp FICA: 15.3% payroll tax applies only to your salary ($50,000), not the distribution ($50,000).

• Federal income tax: 2026 estimated brackets. Standard deduction applied ($15,000).

• State tax: Blended effective rate estimate — actual rates vary by income level and deductions.

• Compliance cost: $1,500/yr estimate (payroll service + CPA premium). Actual varies.

For educational purposes only. Consult a CPA before electing S-Corp status.

S-Corp vs. Sole Prop — Frequently Asked Questions

When does an S-Corp actually save money vs. a sole proprietorship?▾
Generally, an S-Corp starts saving money when your net self-employment income exceeds roughly $40,000–$50,000 per year. Below that threshold, the annual compliance costs (payroll processing, extra CPA fees — typically $1,000–$2,000/year) wipe out the FICA savings. The break-even point depends on your reasonable salary and the gap between your total income and that salary.
What is a 'reasonable salary' for S-Corp purposes?▾
The IRS requires S-Corp owner-employees to pay themselves a 'reasonable salary' — comparable to what you'd pay an employee for the same work. A common starting point is 50% of net income, but it should reflect your specific industry and role. Too low a salary is an audit red flag. Too high and you lose the benefit. Many CPAs recommend 40–60% of net income as a reasonable range.
How does an S-Corp save on self-employment taxes?▾
As a sole proprietor, all net income is subject to 15.3% self-employment tax (up to the Social Security wage base of $176,100, then 2.9% above that). With an S-Corp, you pay yourself a salary — only that salary is subject to FICA payroll taxes. The remaining profit flows through as a distribution, not subject to FICA. The gap between your total income and salary is the tax-free portion of payroll taxes.
What are the ongoing costs of maintaining an S-Corp?▾
S-Corps require payroll processing (quarterly), annual Form 1120-S filing, possible state registration fees, and a CPA who understands S-Corp rules. Budget $1,000–$2,500/year in added compliance costs vs. a simple Schedule C. This calculator uses $1,500 as a default estimate — adjust mentally for your situation.
Can I switch from sole prop to S-Corp mid-year?▾
Yes, but the S-Corp election (Form 2553) generally needs to be filed within 2.5 months of the start of the tax year, or 2.5 months of forming your LLC if you want S-Corp status from formation. Late elections may be granted in certain circumstances. Consult a CPA about timing.

Related Calculators

→S-Corp Election Calculator→Self-Employment Tax Calculator→W-2 vs 1099 Calculator→Retirement Contribution Calculator

OBBB Tax Guide · For informational purposes only · Not tax advice · Disclaimer