2024 tax year · client-side

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//// Business · Tax Structure

Business Entity Comparison

Compare Sole Prop, LLC, S-Corp, and C-Corp side-by-side. SE tax, federal income tax, §199A QBI deduction, S-Corp break-even income, and annual take-home for each entity — with ShowMath and IRC citations.

Corp Tax Rate21%(federal flat rate)

SE Threshold$400(net earnings floor)

FICA Cap 2024$168,600(SS wage base)

Best for taxes

S-Corp

Best take-home

$65,971

S-Corp vs LLC savings

$2,844/yr

S-Corp break-even

$55,616

Net SE incomeAfter business expenses, before taxes

S-Corp salaryW-2 salary if S-Corp. Auto 40% of net if 0. IRS requires reasonable compensation.

Filing status

Recommendation

S-Corp — saves ~$2,844/yr vs LLC at your income. File Form 2553.

Sole Proprietor21.1% eff.

$63,128take-home

SE / payroll tax$11,304

§199A QBI deduction-$11,950

Federal income tax$5,569

Total tax burden$16,872

No protection

~$0/yr

Default status. No formation needed. Files Schedule C. SE tax on 100% of profit.

LLC21.1% eff.

$63,128take-home

SE / payroll tax$11,304

§199A QBI deduction-$11,950

Federal income tax$5,569

Total tax burden$16,872

Limited liability

~$500/yr

Single-member LLC is a disregarded entity — taxed identically to Sole Prop federally. Adds liability protection.

BEST TAX

S-Corp17.5% eff.

$65,971take-home

SE / payroll tax$6,885

§199A QBI deduction-$7,000

Federal income tax$7,144

Total tax burden$14,029

Limited liability

~$2,000/yr

W-2 salary: $45,000 — distribution: $35,000. SE/payroll tax only on salary. Requires payroll + Form 1120-S.

C-Corp21.5% eff.

$62,762take-home

SE / payroll tax$6,885

Federal income tax$10,353

Total tax burden$17,238

Full protection

~$5,000/yr

21% corporate tax on $35,000 retained earnings. Personal payroll + income tax on $45,000 salary. No §199A deduction.

Metric	Sole Proprietor	LLC	S-Corp	C-Corp
SE / Payroll Tax	$11,304	$11,304	$6,885	$6,885
§199A QBI Deduction	$11,950	$11,950	$7,000	$0
Federal Income Tax	$5,569	$5,569	$7,144	$10,353
Total Tax Burden	$16,872	$16,872	$14,029	$17,238
Take-Home	$63,128	$63,128	$65,971	$62,762
Effective Rate	21.1%	21.1%	17.5%	21.5%
Compliance Cost/yr	$0	$500	$2,000	$5,000
Liability Protection	None	Limited	Limited	Full

SE tax (IRC §1401–§1402)

SE tax = net income × 0.9235 × 15.3% (SS portion capped at $168,600 wage base, Medicare uncapped)

= $80,000 × 0.9235 × 15.3% = $11,304

The 0.9235 multiplier adjusts for the employer-equivalent half of SE tax — self-employed bear both the employee and employer sides.

IRC §1401(a)-(b); §1402(a); IRS Schedule SE

Half SE tax deduction (IRC §164(f))

Half SE tax deduction = SE tax / 2

= $11,304 / 2 = $5,652 deducted above-the-line from AGI

IRC §164(f)

§199A QBI deduction — 20% pass-through deduction

QBI deduction = min(QBI × 20%, taxable income × 20%)

= min($74,348 × 20%, $59,748 × 20%) = $11,950

Applies to sole props, LLCs, and S-corp distributions. C-corps do NOT qualify. Phase-out at $182,050 single / $364,100 married (2024).

IRC §199A; Tax Cuts and Jobs Act (2017); IRS Rev. Proc. 2019-38

Federal income tax — Sole Prop / LLC

Taxable income = AGI − standard deduction − QBI → apply 2024 marginal brackets

= $74,348 − $14,600 − $11,950 = $47,799 taxable → $5,569 federal tax

IRC §1; IRS Rev. Proc. 2023-34 (2024 bracket inflation adjustments)

S-Corp: salary vs distribution split

Payroll tax applies only to W-2 salary. Pass-through distribution escapes SE tax entirely.

= Salary: $45,000 (payroll tax applies) | Distribution: $35,000 (no SE tax) → saves ~$4,945 in SE tax

IRS requires 'reasonable compensation' — typically 40–60% of net income. Salary too low = audit risk (IRS Rev. Rul. 74-44).

IRC §1361; IRS Rev. Rul. 74-44; Spicer Accounting, Inc. v. U.S.

S-Corp break-even formula

Break-even = compliance premium / SE tax savings rate per dollar of distribution

= $1,500 compliance premium / 14.13% savings rate + $45,000 salary ≈ $55,616

14.13% = 15.3% × 0.9235. Below break-even, the compliance cost exceeds the SE tax savings.

C-Corp double taxation (IRC §11)

Corporate tax = retained earnings × 21%; Personal tax = income tax + payroll on salary

= 21% on $35,000 retained + personal taxes on $45,000 salary

C-Corp profits are taxed twice: at 21% corporate rate, then again as dividends (0–20% qualified dividend rate). Best when retaining earnings or seeking venture investment.

IRC §11(b) (21% flat rate per TCJA 2017); IRC §1(h) (qualified dividend rates)

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