Professional services
S Corp Tax Calculator
What an S corporation election saves on self-employment tax, against what it costs to run.
Result
Not tax advice. Entity choice, reasonable compensation, pass-through deductions and state treatment interact in ways that depend entirely on your circumstances, and the rules change annually. This estimates a set-aside; the decision belongs with an accountant. Reasonable compensation is the crux and it is not a number you choose freely: it must reflect what the work would cost to hire, and setting it artificially low to shift income into distributions is among the most commonly examined positions there is. An S corp also brings payroll filings, a separate return and in some states an entity-level tax, all of which erode the saving at lower profit levels.
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About this calculator
What counts as a reasonable salary?
What you would have to pay somebody else to do your job, supported by industry data and the hours worked. It is a facts and circumstances test, and a salary far below the profit level invites scrutiny.
At what profit does an S corp make sense?
It varies with the defensible salary and state costs, and the break-even figure here is a starting point rather than a threshold. Below it the compliance cost outweighs the saving.
Does an S corp reduce income tax?
No. It can reduce self-employment tax on the distribution portion. Income tax is owed on the whole profit either way.
The formula
saving = self-employment tax as a sole trader - payroll tax on the salary - payroll and accounting costs
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