S-Corp Break-Even Calculator

How the crossover works

A default LLC (taxed as sole proprietor) pays 15.3% self-employment tax on every dollar of net profit — both the employer and employee halves of Social Security and Medicare. An S-Corp splits income into two buckets: salary (subject to payroll taxes) and distributions (not subject to SE tax). The bigger the gap between your income and your salary, the more SE tax you avoid.

But S-Corps come with real overhead: payroll processing, an extra tax return (Form 1120-S), and state-specific fees. The break-even point is where the SE tax savings exceed those compliance costs. The chart above shows exactly where that crossover happens given your inputs.

What counts as a reasonable salary?

The IRS requires S-Corp owner-employees to receive a salary comparable to what you'd pay someone else to do the same work. CPAs commonly use 40%–50% of business profit as a starting point, with a floor around $40,000–$50,000 and a ceiling that depends on your industry. The slider above defaults to 40% of your income — move it to reflect what your CPA recommends for your situation.

• Lower salary = more distributions = more SE tax savings, but higher IRS audit risk
• Higher salary = less audit risk, but fewer savings and higher payroll tax burden
• The IRS has recharacterized unreasonably low salaries and assessed back taxes + penalties