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Business Entity Tax Comparison (LLC/S-Corp/C-Corp)

Legal basis: Internal Revenue Code § 11 (corporate tax), § 1402 (self-employment tax), §§ 1361-1362 (S corporation election); state and local taxes vary · checked 2026-10-04 · Rates and limits change — verify the current figures.

The entity you choose for a business changes how the same profit is taxed. A sole proprietorship or a single-member LLC that is disregarded for tax purposes pays income tax on all profit at the owner's rate plus self-employment tax on essentially all of it, currently 15.3% on 92.35% of net earnings before the wage-base cap applies to the Social Security portion. An S corporation pays the same income tax on the same profit, but only the salary portion of the owner's take is subject to payroll taxes, with distributions on top generally free of them. A C corporation pays the corporate rate on its profit, and shareholders pay tax again when that profit is distributed as dividends.

This calculator estimates all four side by side from the numbers you enter: net profit, the salary you would take as an S-corp owner, the self-employment and payroll tax rates, the corporate rate, and an effective individual rate. The headline output is the S-corp payroll-tax saving, which is simply the self-employment tax on all the profit minus the payroll tax on just the salary. On $150,000 of profit with a $60,000 salary, the difference is roughly $12,000 before considering the wage-base cap, which this tool ignores. All rates are editable precisely because they change with law and circumstance.

The S-corp saving carries the reasonable-compensation caveat. The IRS requires S-corp owner-employees to pay themselves a reasonable salary for the work they actually perform before taking distributions, and paying an artificially low salary to maximize the saving is one of the most common audit targets in this area. There is no safe-harbor formula; reasonableness is judged on duties, time, comparable pay and local market rates. The C-corp row shows the opposite trap: at a 21% federal corporate rate the entity tax alone can look cheap, but every dollar of after-tax profit paid out as a dividend is taxed again at the shareholder level, so fully distributed profits can bear a combined burden above the individual rate.

Every number here is a simplified federal estimate. It ignores progressive brackets, the qualified business income deduction, the Social Security wage-base cap, additional Medicare tax, state and local entity and franchise taxes, health insurance and retirement plan effects, and many other real moving parts, any of which can change the ranking of the entities. It is an educational estimate for planning, not tax or legal advice, and entity choice has legal consequences beyond tax, including liability and governance. Work through the decision with a licensed CPA and attorney before electing a form.

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Calculate

$
Annual profit before owner compensation and payroll taxes.
$
The salary you would pay yourself as an S-corp owner-employee before distributions. Reasonableness matters: see the caveat above.
%
Combined employer and employee Social Security and Medicare rate. Editable because the wage-base cap changes the effective figure.
%
Combined employer and employee FICA cost on wages.
%
Federal flat corporate rate is currently 21%; state corporate taxes are extra.
%
Your estimated average federal rate on pass-through income or dividends, including state tax if you fold it in.
S-corp payroll-tax savingSE tax on all profit minus payroll tax on the $60,000 salary$12,014
Sole proprietorship (estimated total)income tax plus $21,194 SE tax on all profit$57,194
LLC disregarded (estimated total)single-member LLC taxed like a sole proprietorship by default$57,194
S corporation (estimated total)income tax plus $9,180 payroll tax on salary only$45,180
C corporation entity taxat the 21.0% rate you entered, before any dividend$31,500
C corporation, profits fully distributedadds $28,440 of shareholder tax on dividends: the double-taxation risk$59,940
S-corp salary vs distributionsthe IRS requires the salary to be reasonable for the work performed$60,000 / $90,000
Lowest estimated totalranking ignores brackets, QBI, wage-base cap and state taxes, which can reorder itS corporation
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How the math works

  • Sole proprietorship / disregarded single-member LLC: estimated tax = net profit × individual rate + net profit × 92.35% × self-employment rate.
  • S corporation: estimated tax = net profit × individual rate + salary × payroll tax rate; distributions above the salary are not subject to payroll tax in this estimate.
  • C corporation: entity tax = net profit × corporate rate; if profits are fully distributed, shareholders pay the individual rate again on the after-tax profit.
  • S-corp payroll-tax saving = self-employment tax on all profit − payroll tax on the salary portion.

Frequently asked questions

How can an S corporation save on payroll taxes?
A disregarded LLC or sole proprietor pays self-employment tax on essentially all net profit. An S corporation splits the owner's take into salary and distributions, and only the salary bears FICA payroll tax. The saving is the SE tax on all profit minus the payroll tax on the salary portion.
What is the reasonable compensation rule?
S-corp owner-employees must pay themselves a reasonable salary for the services they actually perform before taking distributions. Setting an artificially low salary to enlarge the payroll-tax saving invites IRS recharacterization of distributions as wages, plus penalties. There is no fixed formula; reasonableness depends on duties, time and market pay.
What is double taxation for a C corporation?
The corporation pays entity tax on its profit, and when the after-tax profit is distributed as dividends the shareholders pay tax again. A business that needs to retain and reinvest all profit may not mind the entity-level tax, but one that distributes everything bears a combined burden that can exceed the individual rate.
Is a single-member LLC taxed differently from a sole proprietorship?
By default, no: the IRS disregards the entity and taxes it on the owner's personal return, so the estimated total is the same. The LLC can still elect S or C corporation treatment, which changes the analysis entirely.
Why are all the rates editable?
Because no single set is right for everyone. The effective individual rate depends on brackets and state tax, the corporate rate you face includes state entity taxes in some states, and the SE and FICA rates change once the Social Security wage-base cap or additional Medicare tax applies. The tool estimates with the rates that fit your situation.
Does the calculator include the QBI deduction or state taxes?
No. It ignores progressive brackets, the qualified business income deduction, the wage-base cap, additional Medicare tax and all state and local entity, franchise and income taxes. Each of these can change which entity comes out ahead, especially at higher profits.
Should I pick my entity purely on this comparison?
No. Entity choice also governs liability protection, governance, fundraising, exit options and state compliance costs, and the tax ranking here is a simplified estimate. Work through both the tax and legal dimensions with a licensed CPA and attorney before filing any election.

This calculator is an educational estimate for planning purposes only. It is not tax or legal advice, it omits brackets, the QBI deduction, the wage-base cap, additional Medicare tax and state taxes, and tax rules vary by jurisdiction and change frequently. Consult a licensed CPA and an attorney before choosing or changing your business entity.

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