Business tax-election guide
Find when an LLC S-corp election may pay for itself
An LLC is a state-law entity, while S corporation is a federal tax election. A single-member LLC is generally taxed on Schedule C unless it elects corporate treatment and files an S election. This calculator compares those two common tax treatments without pretending the legal form alone creates tax savings.
Payroll-tax savings come only from profit left after reasonable shareholder wages and deductible company costs. Payroll software, bookkeeping, Form 1120-S preparation, state entity taxes, and a smaller QBI deduction can move the break-even point far above a popular rule of thumb.
How to use this tool
Start with net business profit
Use profit after ordinary operating expenses but before owner pay and incremental S-corp costs.
Support a reasonable salary
Use comparable compensation for the services the owner actually performs, not a target chosen to manufacture savings.
Price the added compliance
Include payroll, bookkeeping, annual reports, unemployment filings, and separate business-return preparation.
Enter state-specific costs
Use current rules for each state where the entity files or has income; presets are examples only.
Why the salary assumption controls the answer
S-corporation distributions generally avoid Social Security and Medicare tax, but compensation for shareholder services must be wages. A higher supportable salary leaves less distribution and therefore less payroll-tax savings.
Costs omitted by headline savings estimates
- Employer and employee FICA on owner wages
- Monthly payroll service and quarterly payroll filings
- A separate Form 1120-S return and additional bookkeeping
- State minimum franchise taxes or entity-level income taxes
- The loss of QBI deduction on reasonable compensation
How to use the state fields
The California example enters an $800 annual amount for both structures and a 1.5% S-corporation tax rate. California LLC gross-receipts fees, first-year rules, local taxes, and taxes in other states require separate review. Replace every preset with the amount that applies to the business.
This is an educational marginal-rate estimate, not a tax return, reasonable-compensation study, entity-formation recommendation, or legal opinion. QBI wage/property limits, specified-service rules, retirement and health deductions, unemployment tax, workers’ compensation, multi-state filing, and local tax can materially change the result.
Sources and further reading
- IRS S-corporation compensation guidance — Reasonable compensation is required before non-wage distributions.
- IRS 2026 Employer’s Tax Guide — 2026 Social Security and Medicare rates and wage base.
- IRS qualified business income deduction — QBI rules and exclusion of S-corporation reasonable compensation.
- California FTB S corporations — California minimum franchise tax and S-corporation rate.
Frequently asked questions
At what income does an S corp make sense?
There is no universal $60,000, $80,000, or $100,000 threshold. The modeled break-even changes with reasonable salary, other wages, payroll and CPA cost, state taxes, QBI eligibility, and marginal tax rate.
Can an LLC elect S-corporation taxation?
An eligible LLC can generally elect to be treated as a corporation and then elect S status. Entity eligibility, deadlines, late-election relief, and state recognition should be confirmed with a qualified tax professional.
Why is the S-corp QBI deduction smaller?
IRS guidance excludes reasonable compensation received from an S corporation from QBI. Employer payroll taxes and S-corp administrative deductions also reduce pass-through business income.
Does the California preset include every California LLC fee?
No. It is a transparent starting point for the common $800 amounts and 1.5% S-corporation tax. LLC fees based on total income, first-year treatment, apportionment, and local obligations require current facts.