Could S-Corp Election Save You Money?
S-Corp election allows LLC owners to reduce self-employment tax by splitting income between salary (subject to SE tax at 15.3%) and distributions (not subject to SE tax). The IRS requires S-Corp owners to pay themselves a “reasonable salary.” According to the SBA, entity structure is one of the most important decisions a business owner makes.
Self-Employment Tax Calculator
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Your Estimated Results
This is an estimate for educational purposes only. Actual savings depend on state taxes and individual circumstances. The IRS S-Corporation page has more details. Consult our attorneys before making entity changes.
When Does S-Corp Election Make Sense?
S-Corp election typically becomes worthwhile when your LLC’s net profit consistently exceeds $60,000 to $80,000 annually. Below that threshold, the additional compliance costs may offset the tax savings. See our LLC vs. S-Corp comparison for a complete analysis.
Before electing S-Corp status, evaluate payroll costs ($1K–$3K/year), the requirement to file Form 1120-S, state-level implications (California imposes an additional 1.5% S-Corp tax), and the reasonable salary determination. Our entity selection guide walks through the decision framework. The Bureau of Labor Statistics reports that entity selection has long-term compounding effects on wealth building.
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