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Ballpark TaxEst. 2026 · Free tools

S-corp vs sole proprietor calculator

An S-corp election saves payroll tax on the part of your profit you take as a distribution — but it costs real money to run. This works out whether you are past the point where it pays.

You would save each year

Not enough detail yet

Enter your profit and the salary you would pay yourself to see whether an S-corp election pays for itself.

Sole prop SE tax
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S-corp payroll tax
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Salary as % of profit
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Breakeven profit
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Business profit before owner salaryEverything the business makes after expenses, before paying yourself.
Salary you would pay yourselfThe IRS requires 'reasonable compensation' for the work you do. Underpaying here is the most common way S-corp elections go wrong.
Payroll service, per yearGusto, ADP or similar. An S-corp must run real payroll.
Extra tax preparation, per yearAn 1120-S return costs more than a Schedule C.
State filing and franchise feesVaries a lot by state. California's $800 minimum franchise tax is the extreme case.
Self-employment tax as a sole proprietor—
Payroll tax on an S-corp salaryBoth halves of FICA on the salary. Distributions escape it.—
Payroll tax saved—
Cost of running the S-corp—
Net saving per year-$1,700

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How this is worked out

The calculator compares two ways of paying payroll tax on the same profit.

As a sole proprietor, you pay self-employment tax on all of it: 15.3% on 92.35% of profit. As an S-corp, you pay yourself a salary and the business runs payroll on it, so Social Security and Medicare (both the employer's and the employee's share) are charged on the salary only. Whatever profit is left comes to you as a distribution with no payroll tax on it.

On $100,000 of profit, self-employment tax would be $14,130. With a $55,000 salary, payroll tax is $8,415, a saving of $5,715. Take off the default running costs ($600 for a payroll service, $800 for the extra business tax return and $300 in state fees) and the net saving is $4,015 a year. Change those costs to what you would actually pay, because they vary a lot by state and provider.

The breakeven figure is the profit at which the saving exactly covers the costs, with the salary held at the same share of profit.

What the calculator leaves out usually pushes the real breakeven higher. The salary you pay yourself is not qualified business income, so your QBI deduction shrinks. The lower Social Security earnings on record can reduce your benefit later. And the salary has to be reasonable for the work you do: a salary set low to maximise distributions is what the IRS challenges. Once elected, if you revoke S-corp status you generally cannot re-elect for five years without IRS consent.

Sources

Common questions

At what income does an S-corp become worth it?

There is no universal number, because it depends on the salary you pay yourself and what an S-corp costs in your state. Commonly it starts paying off somewhere between $60,000 and $90,000 of profit, but the calculator gives you the breakeven for your own figures.

What counts as a reasonable salary for an S-corp?

The IRS requires you to pay yourself what the work you do would cost to hire. There is no safe-harbour percentage. Paying an artificially low salary to maximise distributions is the most common reason S-corp elections end in back taxes and penalties.

Does an S-corp affect the QBI deduction?

Yes, and it is often overlooked. Wages you pay yourself are not qualified business income, so electing S-corp status can shrink your Section 199A deduction and claw back part of the payroll tax saving. This calculator models payroll tax only.

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Estimates based on published federal rules for tax year 2026. State and local tax is not included. This is general information, not advice about your situation.