S-Corporation Tax Savings Calculator
Discover how much you could save in self-employment taxes by electing S-Corporation status. Compare your tax liability as a sole proprietor or LLC versus an S-Corp with our free calculator.
How to Use This Calculator
- Gross Business Revenue – Your total business income before expenses
- Business Expenses – Total deductible business expenses
- Reasonable W-2 Salary – What you’d pay yourself as an employee (IRS requires “reasonable compensation” – typically 40-60% of net income)
- Filing Status – Your personal tax filing status
- State Tax Rate – Your state income tax rate (Texas = 0%)
Click “Calculate Tax Savings” to see your side-by-side comparison.
S-Corp Tax Savings Calculator
Compare your tax liability as a sole proprietor vs. S-Corporation
Sole Proprietor / LLC
S-Corporation
Annual Tax Savings
Tax Rate Reduction
Understanding S-Corporation Basics
What is an S-Corp?
An S-Corporation is a tax election (not a separate legal entity) that changes how your business income is taxed. You can be an LLC or Corporation that elects S-Corp tax treatment.
The Tax Advantage:
- Sole proprietors pay 15.3% self-employment tax on ALL net income
- S-Corp owners only pay payroll tax (15.3%) on salary portion
- Distributions to owners avoid the 15.3% self-employment tax
- Both sole proprietors and S-Corps pay regular income tax
Real Example:
$150,000 net income
As Sole Proprietor:
Self-employment tax: $22,950 (15.3% of $150k)
As S-Corp:
Salary: $80,000, Distribution: $70,000
Payroll tax: $12,240 (15.3% of $80k only)
Annual Savings: $10,710
The “Reasonable Salary” Requirement
The IRS requires S-Corp owners to pay themselves a reasonable salary for work performed. You cannot pay yourself $20,000 salary and take $200,000 in distributions – the IRS will audit you and reclassify distributions as wages, plus penalties.
Factors the IRS Considers:
- Your training and experience level
- Duties and responsibilities performed
- Time and effort devoted to the business
- Industry compensation data for similar roles
- Company’s dividend history and financial condition
- Economic conditions and geographic location
General Guidelines:
- Full-time owner-operators: 40-60% of net income as salary
- Part-time involvement: Lower percentage acceptable
- Multiple owners: Each must receive reasonable compensation
- Document your reasoning for salary levels
Our team can help determine appropriate salary levels for your role and industry to minimize audit risk while maximizing tax benefits.
S-Corp Costs to Consider
Additional Annual Costs:
- Payroll processing: $1,200 – $3,000/year
- Additional CPA fees for 1120-S: $500 – $2,000/year
- State franchise fees: $50 – $800/year (varies by state)
- Registered agent (if required): $100 – $300/year
- Accounting software upgrades: $200 – $500/year
Total estimated costs: $2,000 – $4,500/year
Break-Even Analysis:
Generally, you need $60,000+ in net business income for S-Corp tax savings to exceed the additional costs. Our calculator shows estimated break-even based on your numbers.
Who Benefits Most from S-Corp Status?
Ideal Candidates:
- Consultants and independent contractors
- Professional services (lawyers, doctors, architects, engineers)
- Real estate agents and brokers
- Software developers and tech professionals
- Marketing and creative agencies
- Any service business with $80,000+ net income
- Businesses with consistent profitability
May NOT Be Worth It For:
- Businesses with net income under $60,000
- Companies planning to sell or dissolve soon
- Businesses with significant losses or inconsistent income
- Passive real estate investors (special rules apply)
- Businesses seeking venture capital or investors
S-Corp Requirements and Obligations
Ongoing Compliance:
- Quarterly payroll tax deposits (Form 941)
- Annual Form 1120-S corporate tax return
- Schedule K-1 for each shareholder
- Reasonable salary documentation
- Corporate minutes and resolutions
- State annual reports and franchise taxes
- Separate business bank accounts (required)
Deadlines Matter:
Missing deadlines or failing to pay reasonable salary can result in IRS reclassification of your entity, penalties, interest, and back taxes owed.
How to Elect S-Corp Status
Step-by-Step Process:
- Form Your Entity – Must be LLC or Corporation first
- Obtain EIN – Get federal tax ID from IRS
- File Form 2553 – Election by Small Business Corporation
- File by March 15 for current year election
- Or within 2 months 15 days of entity formation
- Set Up Payroll – Establish payroll system and processing
- Determine Salary – Research and document reasonable compensation
- Make Estimated Payments – Quarterly tax deposits begin
- File Annual Returns – Form 1120-S due March 15
Timing is Critical:
Late S-Corp elections may not take effect until the following tax year, costing you a year of potential savings.
Get Expert S-Corp Guidance
S-Corporation election is a significant tax decision with long-term implications. Making the wrong choice or failing to comply properly can cost you thousands.
Our Texas-Based Team Provides:
- Entity structure analysis (S-Corp vs LLC vs Sole Prop)
- Reasonable salary determination and documentation
- Form 2553 preparation and filing
- Payroll system setup and processing
- Quarterly estimated tax calculations
- Annual 1120-S preparation and K-1s
- Ongoing tax planning and optimization
- IRS audit support if questions arise
Don’t navigate S-Corp status alone. Schedule a consultation to discuss your specific situation and determine if S-Corp makes sense for your business.
Schedule S-Corp Consultation or call 214-343-0642
Frequently Asked Questions
Can I switch from sole proprietor to S-Corp anytime?
You can elect S-Corp status, but timing matters for tax purposes. Generally, you must file Form 2553 by March 15 to have it apply to the current tax year, or within 2 months 15 days of forming a new entity.
What if I already have an LLC?
Perfect. You can elect S-Corp tax status while keeping your LLC legal structure. This gives you liability protection from the LLC and tax benefits from S-Corp treatment.
Will S-Corp protect my personal assets?
No. Asset protection comes from your LLC or Corporation structure, not the S-Corp tax election. S-Corp is purely a tax choice that determines how your income is taxed.
Can I reverse an S-Corp election?
Yes, but there are restrictions. Once you revoke S-Corp status, you generally cannot re-elect for 5 years without IRS permission. Consult with us before making any changes.
Do I need a separate business bank account?
Yes, absolutely required. Mixing personal and business funds can void your liability protection and create serious tax problems. Maintain completely separate accounts.
What happens if I don’t pay myself a reasonable salary?
The IRS can reclassify your distributions as wages, assess back payroll taxes, charge penalties and interest, and potentially revoke your S-Corp election.
Can I have employees as an S-Corp?
Yes. You can hire employees just like any other business. They’re paid W-2 wages through your payroll system, just like your own salary.
What about state taxes?
Most states recognize S-Corp elections, but some (like California, New York, Tennessee) impose additional S-Corp taxes or fees. Texas has no state income tax, so Texas S-Corps only deal with federal taxes and franchise tax.
Real Savings Examples
Consultant – $120,000 Net Income
Sole Proprietor Tax: $18,360 self-employment tax
S-Corp Tax (60k salary): $9,180 payroll tax
Annual Savings: $9,180
Real Estate Agent – $180,000 Net Income
Sole Proprietor Tax: $25,457 self-employment tax
S-Corp Tax (90k salary): $13,770 payroll tax
Annual Savings: $11,687
Software Developer – $250,000 Net Income
Sole Proprietor Tax: $29,914 self-employment tax
S-Corp Tax (120k salary): $18,360 payroll tax
Annual Savings: $11,554
These are simplified examples. Your actual savings depend on your specific situation, deductions, and state taxes.
Ready to Explore S-Corp Status?
Use the calculator above to estimate your potential savings, then schedule a consultation with our experienced tax team. We’ll review your specific situation, discuss the pros and cons, and help you make the right decision for your business.
Slaton Financial Services has helped hundreds of Dallas-area businesses optimize their tax structure and maximize savings since 1983.
Don’t leave money on the table. Contact us today or call 214-343-0642.