LLC vs S-Corp Election Analyzer (2026)

Should you file Form 2553 and elect S-Corp status? This breakeven analyzer compares the Schedule C self-employment tax hit against an S-Corp's reasonable-salary FICA bill, nets out state entity taxes (CA $800 + 1.5%, IL 1.5% PPRT, MA $456 minimum) and admin costs, and factors in the QBI §199A interaction.

Guidance, not advice. This calculator runs the rules as published, it doesn't assess your circumstances. Your actual tax may be affected by factors it doesn't cover (deductions, credits, filing status nuances, state-specific adjustments). Always seek financial or tax advice from a qualified CPA, Enrolled Agent, or tax attorney, or contact the IRS. Read our editorial scope →

Inputs

Compare a default LLC / sole-prop (Schedule C) against electing S-Corp status (Form 2553) with a reasonable W-2 salary.

Net business income (before owner comp)

Schedule C net profit (LLC) or what the S-Corp would earn before paying you.

Reasonable W-2 salary (S-Corp scenario)

Benchmark via BLS data for your role + region. See theReasonable Compensation analyzer.

Filing status

State

Other household income (spouse W-2, etc.)

S-Corp annual running costs

Payroll service (~$600–$1,500/yr) + 1120-S preparation (~$1,000–$2,500/yr). State minimums added automatically.

Result: S-Corp saves $2,599/yr

All-in burden including federal + California income tax, SE tax or FICA, S-Corp entity tax, and admin costs.

LLC

$56,350

Total annual burden

Federal income tax$16,615

State income tax$18,541

Self-employment tax$21,194

QBI §199A deduction$24,661

After-tax cash$93,650

S-Corp

$53,751

Total annual burden

Federal income tax$19,782

State income tax$19,340

FICA (employer + employee)$9,180

State S-Corp entity tax$2,250

Admin + state minimums$3,200

QBI §199A deduction$17,082

After-tax cash$96,249

Approximate breakeven

At your current salary ratio and state, an S-Corp election starts saving money around $65,000 of net business income. Below that, the FICA savings don't cover admin and entity-tax costs.

Reasonable compensation — IRS audit risk

The IRS requires S-Corp owner-employees to pay themselves a reasonable salary before taking distributions. Factors: role, industry benchmarks, hours worked, experience, and geographic region.

Underpaying triggers reclassification of distributions as wages plus FICA, penalties, and interest. Key precedents: Watson v. Commissioner (CPA paid $24k vs $90k FMV; court reclassified) and Glass Blocks Unlimited v. Commissioner (sole owner paid no salary; full distributions reclassified).

Run the Reasonable Compensation Floor Analyzer

QBI §199A interaction

S-Corp salary reduces your §199A QBI deduction dollar-for-dollar (W-2 wages aren't QBI). PTET payments also reduce QBI. The FICA savings on distributions must be weighed against the smaller QBI deduction — this calculator already nets both effects in the totals above.

State and audit-risk warnings

• California: $800 minimum franchise tax + 1.5% entity-level S-Corp tax on net income.

Tax year 2026 · USD · OBBBA permanent law

Formula: LLC burden = federal + state income tax + SE tax. S-Corp burden = federal + state income tax on (salary + distribution) + employer/employee FICA on salary + state S-Corp entity tax + admin costs. Savings = LLC − S-Corp.

Assumptions

FICA: 6.2% Social Security to $184,500 + 1.45% Medicare uncapped, both employer and employee halves charged economically to the owner.
QBI §199A applied at 20% of (Schedule C net) for LLC and 20% of (S-Corp distribution) for S-Corp — salary excluded from QBI base.
State overlay: CA $800 + 1.5%, IL 1.5% PPRT, NY fixed-dollar minimum, MA $456 non-income measure. TX margin / OH CAT / WA B&O flagged but not modelled.
Breakeven estimate walks $30k–$400k in $5k steps at the current salary-to-profit ratio; recompute when you change inputs.
Reasonable compensation must be defensible (BLS / RCReports). Watson and Glass Blocks govern under-compensation challenges.

Estimates only — not tax advice. Brackets, deductions and thresholds reflect the locked 2026 federal configuration. State amounts use each state's posted 2026 top-line rules and may differ from a full state-form computation. Always confirm complex situations with a qualified CPA, EA, or tax attorney.