Drag the income slider to see exactly where S-Corp election starts saving you money on self-employment taxes, adjusted for your state, salary, and compliance costs.
Drag the income slider to see where S-Corp election starts saving on self-employment taxes. Source: MyStateLLC S-Corp Break-Even Calculator.
Find Your S-Corp Break-Even Point
$10k$500k
$20,000$100,000
LLC (self-employed)
$32,891
estimated annual tax
S-Corp elected LLC
$28,280
estimated annual tax
S-Corp saves
$4,611/yr
vs plain LLC
Break-even point: With a $45,000/yr salary and $1,500/yr compliance cost in California, S-Corp election starts saving money above approximately $34,747 annual income.
Estimates only. Uses 2026 IRS tax brackets, $184,500 SS wage base, and approximate state income tax rates. Does not account for QBI deduction (IRC §199A), retirement contributions, or health insurance deductions. Consult a CPA before electing S-Corp status.
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% to 50% of business profit as a starting point, with a floor around $40,000 to $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
How your numbers compare to real S-corps
The IRS Statistics of Income program counted 5.3 million active S-corporation returns for tax year 2022, with an average business net income of $144,924 per return. That figure measures net income from a trade or business only. It is a benchmark for the business, not an owner's total taxable income. If your projected profit is well below that average, run the break-even check above before electing: the payroll processing and extra filings an S-corp requires can outweigh the self-employment tax savings at lower profit levels.
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Frequently Asked Questions
Generally when net profit exceeds $50,000 to $80,000/year, depending on your state and the salary you pay yourself. Below that level, S-Corp compliance costs, payroll processing, additional state filings, sometimes a registered agent, typically exceed the self-employment tax savings. This calculator pinpoints your exact break-even based on your inputs.
The IRS requires S-Corp owner-employees to pay themselves a reasonable salary, roughly what you'd pay an employee to do your job. You can't pay yourself $1 to avoid payroll taxes. The IRS can recharacterize distributions as salary and assess back taxes plus penalties if your salary is unreasonably low. A common starting point is 40% of business profit.
Significantly. States with high income tax rates (California, Oregon, New York) amplify the federal tax differences, so the crossover point can be lower. States with no income tax (Texas, Florida, Washington) reduce the advantage of any structure. Some states also impose additional franchise taxes or fees on S-Corps that raise compliance costs beyond the $1,500 default in this calculator.
The main recurring costs are payroll processing ($500 to $2,000/yr depending on provider and frequency), the additional annual S-Corp tax return (Form 1120-S, typically $500 to $1,500 with a CPA), and any state-specific S-Corp fees or requirements. Total annual overhead typically runs $1,000 to $3,000, which is why we default this calculator to $1,500 but let you adjust it.
Yes. By default, a single-member LLC is taxed as a sole proprietor and a multi-member LLC as a partnership. An LLC can elect S-Corp federal tax treatment by filing IRS Form 2553. The LLC remains an LLC for legal purposes. Only its tax classification changes. The election must be filed by March 15 for it to apply to the current tax year, or by the 75th day of the year.
This calculator does not account for the Section 199A qualified business income (QBI) deduction (up to 20% of pass-through income), retirement plan contribution deductions (Solo 401k, SEP-IRA), health insurance premium deductions, or the additional 0.9% Medicare surtax on income above $200,000 (single) or $250,000 (MFJ). These factors can materially shift the break-even point. Consult a CPA to model your specific situation.
