Calculate how much you save in self-employment taxes by electing S-Corp status.
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Sole prop SE tax = Net profit × 15.3% (up to SS base) + 2.9% above. S-Corp SE tax = Salary × 15.3%. Net savings = (sole prop SE - S-corp SE) - annual admin costs.
S-Corp election saves SE tax (15.3%) on the difference between revenue and your "reasonable salary." At $150K net profit with $80K salary: save ~$10,700/year.
Generally makes sense when business profit exceeds $50,000-$80,000 above your reasonable salary. Below that, S-Corp compliance costs may exceed savings.
IRS requires reasonable compensation comparable to market rate for the work performed. Typically 40-60% of net profit. Too low invites audit.
Payroll setup ($500-1,000), monthly payroll processing ($50-200), additional CPA fees ($1,000-3,000/year), state filing fees. Net savings must exceed these costs.
Yes — single-member LLCs can elect S-Corp tax treatment. File Form 2553 within 2 months 15 days of tax year start (or use late election rules).
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.