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LLC vs S Corp
Your net earnings, your S-corp salary, your admin costs — payroll tax priced head to head.
X VS Y COMPARISON · MONEY · BUSINESS
LLC vs S Corp: Which Saves You More in Taxes?
The question every profitable freelancer eventually faces, answered with your own numbers. An LLC taxed as a sole proprietorship pays self-employment tax — 15.3% — on all of its net earnings. An S corporation pays that same payroll tax only on the owner’s W-2 salary; the rest flows through as distributions that dodge payroll tax entirely. The catch is the price of admission: payroll service and extra tax prep run $1,000–$2,500 a year, and the IRS demands a “reasonable salary.” At the defaults — $100,000 of net earnings, a $60,000 salary, $2,000 of admin costs — the LLC pays $14,130 in SE tax, the S corp pays $9,180 in payroll tax plus the $2,000 admin bill, and the S corp wins by $2,950. Change the salary, the income, or the admin costs — and watch the winner flip.
How the math works
Both sides of this fight are the same tax wearing different hats. Self-employment tax (the LLC side) is 15.3% — 12.4% Social Security on the first $184,500 of earnings (the 2026 wage base) plus 2.9% Medicare on everything — applied to 92.35% of net earnings, the IRS’s built-in adjustment that makes it roughly equivalent to employer-plus-employee FICA. An S corporation owes that same 15.3% — but only on the owner’s W-2 salary. Profit above the salary passes through as distributions with zero payroll tax. Federal income tax hits both sides identically, so this calculator prices only the payroll-tax gap — that gap, minus the S corp’s extra admin costs, is the whole decision. At the defaults the gap is $4,950 ($14,130 vs $9,180); the $2,000 admin bill shrinks the win to $2,950.
Output · formula · meaning
| Output | Formula | What it means |
|---|---|---|
| LLC self-employment tax | 15.3% × 92.35% of net (SS capped at $184,500) | What the LLC pays on all earnings: $14,130 at the defaults. |
| S-corp payroll tax + admin | 15.3% × salary + admin cost | What the S corp pays: $11,180 at the defaults. |
| Net annual saving | LLC tax − S-corp total | The prize: $2,950/yr to the S corp at the defaults. |
| Break-even salary | salary where saving = $0 | Raise the salary past $79,278 and the S corp stops winning. |
Who uses this
- Freelancers crossing $60k: the income level where the S-corp election usually starts paying for itself — test your exact number.
- Consultants and agency owners: modeling the salary split before electing S-corp status or renegotiating owner pay.
- Side-hustlers going full-time: deciding whether the admin overhead is worth it at current revenue.
- Researchers & students: the 2026 wage-base and rate figures are public IRS/SSA statistics — cite them with the block below.
Accuracy & limitations
This prices the payroll-tax gap only — federal and state income tax hit both structures the same way and don’t decide the race. Rates are 2026: 15.3% SE/payroll tax, $184,500 Social Security wage base, 0.9% Additional Medicare over $200k single / $250k MFJ. The model does not price the QBI 20% deduction (generally available to both), state S-corp fees or franchise taxes, retirement-plan differences, or the reasonable-salary judgment call — see a CPA before electing. Estimates, not tax advice.
Cite this calculatorBright Side Kit. “LLC vs S Corp: Which Saves More Tax?.” brightoolbox.com, 2026.
Bright Side Kit. "LLC vs S Corp: Which Saves More Tax?." https://brightoolbox.com/llc-vs-s-corp/ Accessed October 23, 2026.Frequently asked questions
When does an S corp actually start saving money?
Usually around $60,000–$80,000 of net earnings. Below that, the $1,000–$2,500 of extra admin costs eat the payroll-tax savings \u2014 at $40,000 of net with a $30,000 salary, the LLC wins by $938 because the $2,000 admin bill exceeds the $1,062 payroll-tax gap. The break-even at the defaults sits at a $79,278 salary: below it the S corp wins, above it the LLC keeps the crown. Run your own numbers \u2014 the salary you choose moves the answer more than anything.
What counts as a "reasonable salary" for an S corp?
The IRS requires S-corp owners who work in the business to take "reasonable compensation" before distributions \u2014 and "reasonable" is facts-and-circumstances, not a formula: what the market pays for the role, your hours, and the company’s profit. The folk "60/40 rule" (60% salary, 40% distributions) is a rule of thumb, not law. The audit risk runs one direction: too-low salaries. A $100,000 profit with a $20,000 salary is the profile that draws IRS attention \u2014 and this calculator will still show you the math on it.
Do S-corp distributions avoid all taxes?
No \u2014 only payroll tax. Distributions skip the 15.3% self-employment/payroll tax, but they are still subject to federal and state income tax at your marginal rates. The S corp is a payroll-tax play, not an income-tax play: at the defaults it saves $2,950 of payroll tax and exactly $0 of income tax. Anyone promising bigger savings is counting money you still owe.
What are the real extra costs of an S corp?
$1,000–$2,500 a year is the honest range: a payroll service ($600–$1,800/yr to run payroll and file quarterly 941s), extra tax-prep fees for the 1120-S return and K-1s ($800–$2,000), plus state fees in some states. This calculator’s $2,000 default sits mid-range. At a $60,000 salary the payroll-tax gap is about $4,950 \u2014 so admin costs have to stay under that for the S corp to win. Set admin to $5,000 in the calculator and watch the win collapse to a $50 near-tie.
Should I elect S-corp status under $60,000 of net earnings?
Almost never on tax math alone. At $40,000 of net with a $30,000 salary, the S corp loses by $938 a year after the $2,000 admin bill \u2014 and that’s before the quarterly payroll filings eat your time. The exceptions are non-tax: liability structure, credibility with clients, or a business about to scale past the threshold. Below $60k, the LLC’s simplicity is the feature.
Does the 20% QBI deduction change the LLC vs S corp answer?
Rarely. The qualified business income deduction (up to 20% of pass-through income) is generally available to both structures, so it shrinks both income-tax bills equally and doesn’t move the payroll-tax gap this calculator prices. The one wrinkle: the deduction is computed on QBI, and S-corp W-2 wages reduce QBI \u2014 at high incomes that can tilt slightly toward the LLC. If you’re near the QBI income phaseouts, model both with a CPA.