Sole Prop vs LLC vs S-Corp Calculator
See whether an S-corp actually saves you money after compliance costs — and the exact income where it starts winning.
Written by Dorothy Ibrahim, 10+ years in banking & finance
Reviewed by Benton Jona, EA (Enrolled Agent) — 2026-07-13
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How we calculate this
This calculator puts the sole proprietor/LLC and S-corp federal tax bills side by side at your income and salary, then solves for the break-even income where the S-corp starts winning after compliance costs. Both columns run through the same federal engine — SE tax or payroll FICA, the standard deduction, the QBI deduction, and the 2025/2026 brackets — so the only differences you see are the ones the entity choice actually creates. An LLC by itself is a legal wrapper, not a tax status: a single-member LLC is taxed exactly like a sole prop unless it elects S-corp treatment.
The formulas
- Sole prop / LLC column
- SE tax on 92.35% of profit (12.4% Social Security up to the wage base + 2.9% Medicare) + income tax after the half-SE deduction, standard deduction, and 20% QBI deduction
- S-corp column
- FICA of 15.3% on the salary only (distributions are FICA-free) + income tax on salary + distributions, with QBI = 20% × distributions (wages are not QBI) + annual compliance costs
- Annual savings
- sole-prop total tax − (S-corp total tax + S-corp compliance costs)Negative means the S-corp costs more at your numbers.
- Break-even income
- the income (searched between $40,000 and $200,000, holding your salary ratio constant) where S-corp total cost first drops below sole-prop total cost
Worked example
- Take the defaults: $110,000 net business income, single filer, a $60,000 reasonable salary, $4,000/yr of S-corp compliance costs, tax year 2026.
- Sole prop: net earnings = $110,000 × 0.9235 = $101,585, so SE tax = $15,542.51. After the $7,771.25 half-SE deduction, $16,100 standard deduction, and $17,225.75 QBI deduction, taxable income is $68,903 and income tax is $9,870.66. Total: $25,413.16.
- S-corp: FICA on the $60,000 salary = 15.3% × $60,000 = $9,180, and $50,000 flows through as distributions. QBI = 20% × $50,000 = $10,000 (salary is not QBI), taxable income is $83,900, income tax is $13,170. Tax total: $22,350.
- Add the $4,000 of compliance costs: $26,350 — so at these numbers the S-corp costs $936.84 MORE per year than staying a sole prop/LLC.
- Holding the 54.5% salary ratio, the break-even solver finds S-corp wins starting around $178,350 of net income — below that, the payroll-tax savings do not cover the compliance costs plus the smaller QBI deduction.
Rates, benchmarks & sources
- 2026 brackets and the $16,100 single standard deduction used in both columns; brackets made permanent by OBBBA — IRS Rev. Proc. 2025-32
- 20% QBI deduction — applied to full profit for the sole prop, distributions only for the S-corp — OBBBA §199A (permanent); Rev. Proc. 2025-32 §4.26
- SE/FICA rates and the $184,500 Social Security wage base for 2026 — SSA (2025-10-24); IRS; PayrollOrg (2026)
- Default S-corp compliance cost of $4,000/yr (typical range ~$3,500–5,000 for payroll service plus extra tax prep) — not an IRS figure — Industry rule of thumb
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- Federal only — several states levy entity-level taxes, franchise fees, or S-corp-specific charges (and a few do not recognize S-corp status), which can change the answer materially.
- The QBI comparison is simplified: above the phase-in threshold, SSTB and W-2 wage limits apply and can actually favor the S-corp differently than shown here.
- The break-even solver holds your salary-to-income ratio constant as income scales; in practice a reasonable salary does not scale linearly with profit.
- It does not model solo 401(k)/retirement interactions, health-insurance premium treatment, or the payroll-tax effect on future Social Security benefits — lower FICA now can mean a smaller benefit later.
- This is an educational estimate, not advice to elect or avoid any entity — the reasonable-compensation requirement and election mechanics are facts-and-circumstances matters for a credentialed professional.
Frequently asked questions
Is an LLC taxed differently than a sole proprietorship?
For federal income tax, no — an LLC is a legal liability wrapper, not a tax status. A single-member LLC is a "disregarded entity" and files exactly like a sole proprietor, paying full self-employment tax on profit. The tax treatment only changes if the LLC elects S-corp (or C-corp) status, which is why this tool shows sole prop and LLC as one column.
Where do S-corp savings actually come from?
From payroll tax, not income tax. A sole proprietor pays 15.3% SE tax on essentially all profit; an S-corp owner pays FICA only on the W-2 salary, and the remaining profit passes through as FICA-free distributions. Working against that: S-corp wages are excluded from the 20% QBI deduction, and payroll plus tax-prep compliance typically runs $3,500–5,000 a year — which is why low incomes often lose.
Why is my break-even so much higher than the "$75–80k" rule of thumb I read?
That figure is a rule of thumb that often assumes lower compliance costs and a lower salary ratio than yours. Your break-even depends heavily on both: a higher reasonable salary shrinks the FICA-free distribution slice, and every dollar of compliance cost must be recovered in tax savings first. In the default example ($60,000 salary, $4,000 costs) the computed break-even lands near $178,350.
Can I just pay myself a tiny salary and take everything as distributions?
The IRS requires S-corp owner-employees to take reasonable compensation for the work they perform, and it can reclassify distributions as wages — with back payroll taxes and penalties — when the salary is unreasonably low. Court cases look at what you would pay someone else to do your job. The tool flags salary ratios below about 40% of income as elevated audit risk (a rule-of-thumb band, not an IRS bright line).
Does this comparison include state taxes and filing costs?
No — it is a federal-only estimate. State income tax usually treats both entities similarly, but some states add franchise taxes, gross-receipts taxes, or minimum fees on S-corps and LLCs, and a few tax S-corps at the entity level. Those costs belong in your compliance-cost input or in a conversation with a CPA; this tool is an estimate, not filing or election advice.
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Federal figures only unless noted. State taxes vary.