S corporation savings calculator: sole proprietor or LLC vs S corporation
An S corporation can cut self-employment tax, because profit above your salary is not subject to it. This calculator shows the size of the effect and why the salary matters.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
Estimate your S corporation payroll-tax saving
Example
A business with $120,000 of profit and an owner salary of $60,000: self-employment tax as a sole proprietor is about $16,955, payroll tax on the salary is about $9,180, a difference of about $7,775 before costs.
Before you elect
- Set a defensible, documented reasonable salary.
- Add up the extra costs: payroll, the Form 1120-S, state fees and Illinois replacement tax.
- Check how the election changes your 20% business income deduction and your health insurance and retirement plan.
- File Form 2553 on time (2 months and 15 days).
Ready to look at your real numbers? Book a 20-minute call.
Common questions
How is the saving calculated?
It compares the self-employment tax on your profit as a sole proprietor or single-member LLC (15.3% on 92.35% of profit up to $184,500, 2.9% above) with the Social Security and Medicare tax on your salary as an S corporation owner (12.4% up to $184,500 and 2.9% on all salary, employer and employee shares together).
What is a reasonable salary?
What a business would pay someone to do your work: your role, hours, skills, location and the profit the business makes. The IRS can recharacterize distributions as wages if the salary is too low. Document how you set it.
What does the calculator leave out?
Payroll costs, the separate tax return, state fees and taxes such as the Illinois replacement tax on S corporations, the Additional Medicare tax, and the effect on the 20% business income deduction, which can be lower when profit is paid as distributions or limited by W-2 wages. These can reduce or erase the saving.
When does an S election start to pay?
It depends on your profit, your reasonable salary and costs. Many owners find it begins to pay when profit is well above a reasonable salary. We run your actual numbers.
Official sources
- IRS: Instructions for Form 2553 (S corporation election)
- IRS: 2026 inflation adjustments (Rev. Proc. 2025-32)
- IRS Publication 583: Starting a business and keeping records
Let's talk about your taxes, your business, your plans.
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