LLC vs S-Corp Tax Savings Calculator

S-Corp election generally makes sense when your net business income consistently exceeds $60,000-$80,000 per year. Below that, the annual compliance costs (payroll processing, separate tax return, registered agent) of $3,000-$5,000 often eat up any self-employment tax savings. The sweet spot is typically $80K-$250K in net income where the savings are substantial relative to costs. You should also have stable, predictable income since S-Corp requires running payroll year-round.

The IRS requires S-Corp owner-employees to pay themselves a "reasonable salary" before taking tax-free distributions. This is typically 40-60% of net business income. The IRS looks at factors like what similar businesses pay for comparable work, your experience and training, time devoted to the business, and salary history. Setting your salary too low is the #1 red flag for IRS audits of S-Corps. Use the BLS Occupational Employment Statistics as a baseline for your industry.

Savings come from avoiding the 15.3% self-employment tax on the distribution portion of your income. At $100K net income with a $50K salary, you avoid SE tax on approximately $50K in distributions, saving roughly $7,000-$8,000 after accounting for compliance costs. At $200K, savings can exceed $15,000. The calculator above gives you personalized estimates based on your exact situation including filing status and QBI deductions.

Typical annual S-Corp costs include: payroll processing service ($500-$2,000), preparation of Form 1120-S tax return ($1,000-$2,500 if using a CPA), registered agent service ($100-$300), possible state franchise taxes (varies by state, e.g. California charges $800 minimum), bookkeeping for separate business accounts, and quarterly payroll tax filings. Total costs typically range from $3,000-$5,000 per year, though they can be higher in states with additional requirements.

Yes, you can revoke your S-Corp election by filing a statement with the IRS. However, once revoked, you generally cannot re-elect S-Corp status for 5 tax years without IRS consent. The revocation requires agreement from shareholders holding more than 50% of the stock. You can choose the effective date of revocation. Consult a CPA before revoking, as there may be tax implications for the transition year and you want to ensure proper handling of the change in entity classification.