IRS Form 2553 · 2024 rules · client-side

S-Corp electionLLC tax savingssole proprietor vs S-Corpreasonable compensationSE tax savingsS-Corp break even1099 business entity

//// Tax · Business Entity

LLC Tax Savings Calculator

Enter your net self-employment profit to see how much an S-Corp election saves in SE tax, when it breaks even, and whether now is the right time to elect. Every payroll tax formula shown.

401(k) Limit 2024$23,000(+$7,500 catch-up 50+)

Roth IRA Limit$7,000(MAGI phase-out applies)

S&P 500 Avg Return~10%/yr(nominal, historical)

Annual S-Corp net advantage

+$2,684

$5,184 SE tax saved − $2,500 accounting cost

✅

Consider electing

Break-even: $38,583 profit

The math works in your favor. Talk to a CPA or payroll provider (Gusto, Justworks) to set up payroll. The net annual advantage shown is meaningful.

Your Numbers

Net self-employment profit

Annual profit after deductible business expenses, before any taxes

S-Corp reasonable salary

IRS requires a reasonable wage — auto-suggested at 40% of profit, min $40k

Auto-suggested salary: 40.0% of profit ($40,000). Override above.

Annual accounting / payroll cost

CPA + payroll setup (Gusto, Justworks, ADP). Typical range: $2,000–$3,500/yr

Side-by-Side Comparison

Entity	SE / Payroll Tax	Accounting	Total Burden	Net Keep
Sole Proprietorship	$11,304	—	$11,304	$68,696
Single-Member LLC(same as sole prop, federally)	$11,304	—	$11,304	$68,696
S-Corp Election★ Best	$6,120	$2,500	$8,620	$71,380

Note: Income tax is identical across all three entities and is excluded from this comparison. Only FICA / SE tax burden differs.

Sole prop SE tax

$11,304

S-Corp payroll tax

$6,120

Distribution (SE-free)

$36,940

How the S-Corp election works

A single-member LLC is a "disregarded entity" for federal taxes — all profit flows to Schedule C and is subject to the full 15.3% SE tax, just like a sole proprietorship. The LLC provides liability protection but no tax savings.

An S-Corp election (filed via IRS Form 2553) splits your income into two buckets: (1) a W-2 salary subject to payroll taxes, and (2) distributions that pass through to your personal return but are not subject to SE tax. The savings come from moving as much income as the IRS allows into distributions.

The IRS requires the salary to be "reasonable compensation" — roughly what you would pay someone else to do your job. Underpaying yourself to avoid payroll taxes is an audit red flag.

To elect S-Corp status: file IRS Form 2553 within 75 days of formation or by March 15 for the current tax year.

Sole prop SE tax base

net profit × 0.9235

$80,000 × 0.9235

= $73,880

IRS multiplies by 0.9235 (= 1 − 7.65%) before computing SE tax, approximating the employer-equivalent deduction.

Social Security tax (sole prop)

min(SE base, $168,600) × 12.4%

$73,880 × 12.4%

= $9,161

SS tax is capped at the 2024 wage base of $168,600.

Medicare tax (sole prop)

SE base × 2.9%

$73,880 × 2.9%

= $2,143

Total sole prop SE tax

Social Security + Medicare

$9,161 + $2,143

= $11,304

Single-member LLC has identical federal SE tax treatment — it is a disregarded entity.

S-Corp: reasonable salary

your elected salary

= $40,000

IRS requires a 'reasonable salary' for owner-employees. A common starting point is 40% of profit with a $40,000 minimum.

S-Corp: employee payroll taxes on salary

min(salary, $168,600) × 6.2% + salary × 1.45%

$40,000 × 6.2% + $40,000 × 1.45%

= $3,060

The employee half of FICA — withheld from your paycheck.

S-Corp: employer payroll taxes on salary

min(salary, $168,600) × 6.2% + salary × 1.45%

(matching employer half)

= $3,060

The employer half — a deductible business expense for the S-Corp.

S-Corp: total FICA on salary

employee half + employer half

$3,060 + $3,060

= $6,120

Distribution (not subject to SE tax)

net profit − salary − employer payroll taxes

$80,000 − $40,000 − $3,060

= $36,940

This is the key S-Corp advantage — distributions avoid the 15.3% SE tax entirely.

SE tax saved by S-Corp election

sole prop SE tax − S-Corp total payroll

$11,304 − $6,120

= $5,184

Net S-Corp advantage

SE tax saved − annual accounting cost

$5,184 − $2,500

= $2,684

Typical S-Corp accounting + payroll costs are $2,000–$3,500/year. Enter your actual quote.

Break-even profit level

accounting cost ÷ marginal SE savings rate

$2,500 ÷ ~6.5%

= $38,583

Below this profit level the S-Corp costs more than it saves.

Key insight

At $80,000 net profit with a $40,000 S-Corp salary, you shield $36,940 from SE tax — saving $5,184 in payroll taxes before accounting costs.

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