S-Corp vs LLC (2026)

The S-corp pitch is really a FICA pitch

LLC income taxed as sole proprietorship pays self-employment tax on all net profit. S-corporation election splits profit into W-2 wages (FICA applies) and distributions (generally no SE tax). Savings can be thousands annually—but only if you pay yourself a reasonable salary and absorb compliance cost.

Enter net business profit, proposed S-corp salary, filing status, and other income. Compare SE tax vs FICA on salary plus income tax on both paths. The tool warns when salary looks unreasonably low relative to profit—you must adjust.

Reasonable compensation warning

IRS scrutinizes S-corps paying minimal salary and large distributions. Service professionals with $200,000 profit and $30,000 salary face reclassification risk. Set salary using industry data, hours worked, and company revenue—not just tax savings target.

2026 FICA/SE context

Social Security wage base $184,500; Medicare uncapped. S-corp salary runs FICA; distributions above reasonable salary avoid 15.3% SE tax on that portion. Savings cap roughly SE tax rate × (profit − reasonable salary) subject to base limits.

How to use the calculator

Step 1 — Enter net Schedule C equivalent profit

Profit before entity comparison.

Step 2 — Enter proposed S-corp W-2 salary

Must be defensible; tool flags low salary ratios.

Step 3 — Read SE tax delta and net tax

Subtract extra payroll admin costs mentally if applicable.

Worked example

$120,000 net profit, $70,000 reasonable salary, $50,000 distribution. LLC path: SE tax ~15.3% on ~$110,760 SE base ≈ $16,900. S-corp path: FICA on $70,000 salary ≈ $5,355. Rough SE tax savings ~$11,500 before payroll costs and 1120-S prep.

QBI interaction

S-corp W-2 wages affect Section 199A wage limits. High distributions with low wages may reduce QBI deduction—model in Section 199A QBI calculator.

State entity taxes

Some states charge LLC fees or S-corp minimum taxes. Compare residency burden in state tax comparison.

1099 contractor baseline

Compare raw contractor math in W-2 vs 1099 before layering S-corp election.

Common mistakes

• Setting salary near zero on active service businesses
• Ignoring payroll tax filing burden and state UI
• Forgetting distributions still pay income tax
• Electing S-corp with losses (no SE tax to save)

Related tools

1099/SE: self-employment tax calculator. Paycheck on salary: paycheck calculator. QBI: Section 199A QBI calculator.

1120-S compliance costs

Reasonable salary requires running payroll with quarterly 941 filings, state unemployment, and W-2 issuance—$1,500–$3,000 annual admin is common before tax savings. Loss years favor LLC simplicity; profit years above ~$60,000–$80,000 often start S-corp breakeven conversations depending on state and salary level chosen.

Built-in gains and distribution tax

Former C-corporation converting to S-corp may pay built-in gains tax if assets sold within recognition period—LLC taxed as S-corp inherits same issue. Distributions beyond AAA and basis may trigger capital gain at shareholder level separate from salary FICA savings.

Multiple shareholders complicate reasonable compensation—each officer needs defensible salary; one shareholder lowball may taint entire S election scrutiny.

State S-corp entity taxes (California $800 minimum franchise, etc.) reduce net savings from FICA strategy—enter state costs mentally when comparing LLC.

Reading your results for s corp vs llc

The interactive panel above shows a transparent calculation trace in cents—use it to sanity-check inputs before you rely on any number for decisions. Tax software at filing time may differ when every credit, limitation, and state conformity rule is applied in full. Treat output here as structured planning math aligned to 2026 federal reference data where noted, not as e-file output or professional advice.

When your situation includes items this specialized tool simplifies—multiple entities, prior-year carryforwards, treaty elections, or state nonconformity—layer those facts manually or with a preparer. The goal is to narrow uncertainty enough to ask better questions, not to eliminate the need for review when dollars are material.

Recordkeeping that survives scrutiny

Keep source documents (forms, statements, logs, confirmations) that support every input you typed. IRS and state audits often start from third-party reporting; your job is to reconcile 1099s, K-1s, and broker exports to the story you file. Digital backups with dates beat reconstructed spreadsheets created after an notice arrives.

For s corp vs llc, retain worksheets year to year when carryforwards exist—loss carryovers, credit carryforwards, passive loss suspensions, and basis schedules die silently if you change preparers and lose history.

Related tools on this site

SE tax: self-employment tax calculator. QBI: Section 199A QBI calculator. 1099 path: 1099 tax calculator.

2026 federal brackets and payroll context

Ordinary income tax brackets and standard deductions for 2026 follow IRS Rev. Proc. 2025-32 ($16,100 single / $32,200 joint standard deduction; seven marginal rates from 10% to 37%). Social Security tax applies at 6.2% on wages up to the $184,500 wage base; Medicare continues at 1.45% with Additional Medicare Tax above threshold wages. These layers stack independently from specialized rules modeled in this s corp vs llc tool—run the federal income tax calculator when you need the full return picture.

Quarterly estimated tax may be required when withholding does not cover liability—see the quarterly estimated tax calculator. Year-end refund or balance due comparisons belong in the tax refund estimator once withholding and payments are known.

Before filing season

Reconcile this s corp vs llc calculator estimate against draft Form 1040 lines and attached schedules your software produces. Look for mismatches in basis, carryforwards, and state add-backs—the first pass with a specialized calculator often misses secondary limits that full return software catches. Update inputs when you receive final 1099s, K-1s, and corrected broker statements; January revisions are normal.

If results imply large balance due, adjust withholding or estimated payments before December 31 when possible—penalties accrue on underpayment even when you file timely in April. If results imply large refund, you may be over-withholding or overpaying estimates; tune W-4 or voucher amounts for better cash flow without chasing refunds as a savings strategy.

State returns often piggyback federal logic but diverge on conformity items. Re-run state tools when federal inputs change materially so you do not pay state estimates based on federal-only planning from this s corp vs llc calculator page.

Sources and methodology

SSA 2026 wage base; Rev. Proc. 2025-32 income tax. Reasonableness is factual—not calculated here. Educational entity planning.