LLC vs S-Corp Tax Calculator (2026)
Should your LLC elect S-Corp tax treatment? Dynamic break-even by state, full compliance costs (CA franchise tax, IL Replacement Tax, NYC ignore), QBI interaction, reasonable salary floor, and Form 2553 deadline awareness. 2026 OBBBA-current.
Based on 11 official sources↓Recommendation
Elect S-Corp
Annual savings
US$5,155.54
5-year projection
US$25,777.70
Why: S-Corp election saves $5,156/year after $3,600 of compliance costs (payroll service, Form 1120-S preparation, bookkeeping, state extras). Over 5 years, that's $25,778 in cumulative savings. Your net profit ($120,000) is comfortably above the break-even point for your state and profession.
Form 2553 deadline (Tax year 2027)
March 15, 2027
Days remaining
320d
Side-by-side
LLC default (sole prop)
US$92,246.62
Effective rate: 23.13%
S-Corp election
OptimalUS$97,402.16
Effective rate: 18.83%
S-Corp breakdown
- Salary
- US$40,000.00
- K-1 distribution
- US$73,340.00
- Employer FICA
- US$3,060.00
- Employee FICA
- US$3,060.00
- Payroll service
- US$1,200.00
- Form 1120-S preparation
- US$1,800.00
- Bookkeeping extra
- US$600.00
- Reasonable salary floor:
- US$40,000.00
- Audit risk:
- Low
Break-even analysis
Break-even net profit
US$75,000.00
Clear-win threshold
US$100,000.00
In your specific profile (TX state, tech engineering profession, single filer), S-Corp election starts beating LLC default at approximately $75,000 of annual net profit. S-Corp becomes a clear win (savings > $2,500/year) at $100,000. Your state has no income tax — the federal S-Corp savings flow through cleanly.
2026 figures use OBBBA-permanent provisions (P.L. 119-21): updated brackets, $184,500 Social Security wage base, expanded QBI phase-out range ($75k single / $150k MFJ).
Simplified model focused on the LLC-default vs S-Corp election decision. Does not model: C-Corp election, multi-member LLC with guaranteed payments, AMT, NIIT (3.8% Net Investment Income Tax), QBI Form 8995-A precise applicable percentage in phase-in zone, sector-specific regimes (real estate professional, traders), state PTET elections, year-of-transition complications. Reasonable salary defense draws on Watson v. Commissioner (2010) and Glass Blocks (2013) — actual safe harbor depends on profession-specific BLS data. Multi-state filers, expats, and high-net-worth situations need a CPA.
There's a tax election sitting on a single IRS form (Form 2553, two pages) that can save a six-figure self-employed worker $8,000 to $25,000 a year. Most LLC owners never file it. The default tax treatment for a single-member LLC is sole proprietorship — the IRS calls it a 'disregarded entity' and you report everything on Schedule C. That default is fine when revenue is small. Once profit climbs past roughly $60,000, the default starts costing real money in self-employment tax that an S-Corp election would skip.
The trade-off isn't free. S-Corp election creates roughly $2,000 to $4,500 of annual compliance overhead: payroll service, Form 1120-S preparation, additional bookkeeping, and in some states a franchise tax minimum (California's $800, for example). It also locks in the requirement to pay yourself a 'reasonable salary' as W-2 wages — IRS-audited territory. Below the break-even, the overhead eats the savings. Above it, the math compounds: every dollar of profit beyond the salary skips the 15.3% self-employment tax, and in many cases the salary itself unlocks a Section 199A QBI deduction that a sole prop above the QBI threshold loses entirely.
This calculator runs both structures side by side using 2026 OBBBA-permanent rules: $184,500 Social Security wage base, Section 199A QBI threshold $201,775 single / $403,500 MFJ with $75k/$150k phase-out range, $16,100/$32,200 standard deduction. State-specific extras for California (1.5% franchise tax + $800 minimum), Illinois (1.5% Personal Property Replacement Tax), Massachusetts ($456 corporate excise minimum), and New York City (which ignores S-Corp election and taxes as C-Corp at the city level — a planning trap). It also tells you the Form 2553 deadline countdown and whether you're past it for the current tax year.
How LLC default vs S-Corp election plays out in 2026
LLC default tax treatment. A single-member LLC is, by default, a disregarded entity. You report business income and expenses on Schedule C of your personal 1040. Net earnings × 92.35% becomes the SE base, on which you pay 15.3% self-employment tax (Social Security 12.4% capped at $184,500 wages + Medicare 2.9% with no cap). Half of SE tax is an above-the-line deduction. Above $200k single / $250k MFJ wages or SE earnings, an additional 0.9% Medicare kicks in. Then federal income tax (10-37% brackets), state income tax, and finally the QBI deduction (which we'll get to). No payroll, no separate corporate return — the simplicity is the point.
S-Corp election. You file Form 2553 to elect S-Corp tax treatment for your existing LLC (or corporation). The entity itself doesn't change at the state level — your LLC is still an LLC, you still have the same EIN, the operating agreement is the same. What changes is how the IRS taxes the income: you split it between a 'reasonable salary' paid to yourself as W-2 wages (subject to FICA — both employer and employee halves coming out of business funds) and K-1 distributions of the remaining profit (NOT subject to SE tax). The K-1 portion is where the savings live. On a $200k profit with a $70k salary, $130k of K-1 distribution skips the 15.3% Medicare-uncapped portion that would have hit a sole prop's full $200k.
The 'reasonable salary' problem. The IRS pays attention to S-Corp salaries because the structural incentive is to set the salary as low as possible (more K-1, less FICA). Watson v. Commissioner (Tax Court 2010) and Glass Blocks Unlimited (2013) settled the standard: salary must reflect what you'd pay an employee to do the same work, with court cases generally landing in the 30-40% of net profit range for service businesses. Going below 30% is an IRS audit flag. The auto-optimizer in this calculator enforces a 30% floor (max of $40,000 or 30% × net profit) — not the absolute tax-minimum, the audit-defensible minimum. Switch to manual mode if you have a documented basis (BLS data, comparable salary surveys, Robert Half guides) to support a different number.
QBI Section 199A — the hidden multiplier. TCJA introduced a 20% deduction on qualified business income for pass-through entities. OBBBA made it permanent in 2025 and expanded the phase-out range to $75k/$150k. Below the threshold ($201,775 single / $403,500 MFJ in 2026), it's automatic — 20% off qualified income, no questions. Above the threshold, two limits apply. First, SSTBs (Specified Service Trades — consulting, law, medicine, accounting, financial services) phase out across the range and disappear above the upper bound. Second, non-SSTBs face a W-2 wage limit: deduction capped at 50% of W-2 wages paid by the business (or 25% wages + 2.5% qualified property). Sole props pay zero W-2 wages, so non-SSTB sole props above the QBI phase-out end get ZERO QBI deduction. S-Corp salary creates the W-2 wage base that unlocks the QBI for high earners. This is the structural reason high-income engineers and creators almost always elect S-Corp — it's not just SE tax savings, it's QBI eligibility.
State-specific extras that tilt the math. California: 1.5% franchise tax on S-Corp net income, $800 annual minimum even at zero profit. Illinois: 1.5% Personal Property Replacement Tax on S-Corp income. Massachusetts: $456 minimum corporate excise. New York: $25 minimum filing fee plus optional PTET (Pass-Through Entity Tax) election that can offset the SALT cap. New York City: the trap. NYC ignores the federal S-Corp election and taxes the entity at the city level as a C-Corp under the General Corporation Tax (8.85%). For NYC residents, the federal S-Corp savings can be partially or fully offset by NYC corporate tax. Manhattan-based service businesses often find LLC default is simpler and competitive after factoring NYC GCT.
Form 2553 deadline. S-Corp election must be filed within 2 months and 15 days of the start of the tax year you want it to apply — which lands on March 15 of the tax year for calendar-year filers. In 2026, March 15 is a Sunday, so the deadline pushes to Monday March 16. Miss it for 2026, you're paying SE tax on the full year's profit and the next election applies to 2027. Late election relief under Rev. Proc. 2013-30 is available for up to 3 years and 75 days late, but requires reasonable cause and a clean filing history. Don't rely on it.
OBBBA 2026 permanence. The One Big Beautiful Bill Act (P.L. 119-21, July 2025) made the TCJA individual provisions permanent: brackets, standard deduction, QBI, $0 personal exemption. It also expanded the QBI phase-out range from the original $50k/$100k to $75k/$150k. The Social Security wage base updates annually for inflation — $184,500 in 2026 (up from $176,100 in 2025). These rules are settled through at least the next reauthorization cycle.
LLC default: SE tax (15.3% on 92.35% × net) + federal + state on (net − half SE − std deduction − QBI). S-Corp: FICA (15.3% on salary only, both halves) + federal + state on (salary + K-1 − std deduction − QBI(K-1)) + state extras (CA 1.5% + $800, IL 1.5% PPRT, MA $456, etc) + admin overhead ($2k-$4.5k typical). Break-even: profit at which S-Corp savings exceed total overhead. Typically $60k-$80k for non-SSTB, higher for SSTB or high-tax states.
- SE tax
- 15.3% on 92.35% of net earnings (Schedule SE) — sole prop pays both halves
- Reasonable salary
- S-Corp owner-employee W-2 wages — IRS-audited. Defensible floor: 30-40% of net profit per Watson v. Commissioner (2010).
- K-1 distribution
- Net profit minus salary minus employer FICA — flows to owner without SE tax
- QBI deduction
- 20% of qualified business income. Sole prop loses it above QBI threshold (no W-2 wages); S-Corp salary unlocks it.
- State extras
- CA 1.5% franchise + $800 min, IL 1.5% PPRT, MA $456 min excise, NY $25 fee + optional PTET, NYC GCT (S-Corp ignored)
Practical examples
$120k profit, single, TX, tech engineer (non-SSTB) — clear S-Corp winner
Setup: Independent software engineer running a single-member LLC. $120,000 net profit (revenue minus business expenses, before any owner compensation). Texas resident (no state income tax), single filer, non-SSTB. Default S-Corp admin: $1,200 payroll service + $1,800 Form 1120-S CPA + $600 bookkeeping = $3,600/year.
**LLC default:** Net $120,000. SE base $110,820. SS portion $110,820 × 12.4% = $13,742. Medicare $110,820 × 2.9% = $3,214. SE tax total $16,956. Half SE $8,478. AGI $111,522. Pre-QBI taxable $95,422. Below $201,775 threshold → full 20% QBI on ($120k − $8,478) = $111,522 → QBI $22,304. Final taxable $73,118. Federal tax ~$11,400. State $0. Take-home: $120k − $16,956 − $11,400 = **~$91,644**. **S-Corp (auto with 30% floor):** Net $120k − $3,600 admin = $116,400 available. Auto-optimizer enforces 30% floor: salary $40,000. Employer FICA $3,060. K-1 = $116,400 − $40,000 − $3,060 = $73,340. Total income $113,340. Employee FICA $3,060. QBI on K-1: $73,340 × 20% = $14,668. Federal taxable ~$83,572. Federal tax ~$9,200. Take-home: $113,340 − $3,060 − $9,200 = **~$101,080**.
Takeaway: S-Corp election saves about $9,400/year at $120k profit in Texas — clean win. The $3,600 admin is paid for many times over. Notice that the 30% reasonable-salary floor ($40,000 on $120k profit, well above the implied minimum) keeps the salary defensible while still capturing most of the SE tax savings on the $73k K-1 distribution. The break-even where S-Corp first beats LLC for this profile (single, TX, tech) lands around $55k-$60k profit — anything above that, S-Corp pulls ahead and the gap widens fast.
$50k profit, single, CA, tech engineer (non-SSTB) — LLC default still wins
Setup: Side-business consultant earning $50,000 net profit. California resident, single filer, non-SSTB. Same admin assumptions ($3,600 S-Corp overhead).
**LLC default:** Net $50,000. SE base $46,175. SE tax $7,065. Half SE $3,532. AGI $46,468. Pre-QBI taxable $30,368. Full QBI on $46,468 = $9,294. Final taxable $21,074. Federal tax ~$2,326. CA state ~$1,100. Take-home: $50k − $7,065 − $2,326 − $1,100 = **~$39,509**. **S-Corp:** Net $50k − $3,600 admin = $46,400. 30% floor → salary $40,000 (max($40k, 30% × $46,400 = $13,920) = $40,000). Employer FICA $3,060. K-1 = $46,400 − $40,000 − $3,060 = $3,340. Total income $43,340. Employee FICA $3,060. CA franchise tax: max($800, 1.5% × $3,340 = $50) = $800. QBI on K-1: $3,340 × 20% = $668. Federal taxable ~$26,572. Federal tax ~$2,800. CA state ~$900. Take-home: $43,340 − $3,060 − $2,800 − $900 − $800 = **~$35,780**.
Takeaway: LLC default beats S-Corp by ~$3,700/year at $50k profit. The 30% reasonable-salary floor + $40k absolute minimum forces the salary to $40k, which leaves only $3,340 of K-1 — not enough distribution to outrun the $3,600 admin and $800 California franchise tax. This is the textbook 'too small for S-Corp' scenario. Wait until profit clears $65k-$75k in California before electing.
$300k profit, single, CA, consulting (SSTB) — S-Corp wins despite QBI phase-out
Setup: Solo management consultant. $300,000 net profit, single filer, California resident. Consulting is an SSTB — at single taxable income above $201,775, QBI phases out across $75k range and disappears above $276,775. CA tax (~10% top marginal at this income) and 1.5% franchise tax apply.
**LLC default:** Net $300,000. SE = SS cap $22,878 + Medicare $8,033 + addl Medicare $623 = ~$31,534. Half SE $15,455. AGI $284,545. Pre-QBI taxable $268,445 — between $201,775 and $276,775 phase-out range. Phase-in fraction ~88.9%. SSTB QBI almost fully phased out: $52,400 × (1 − 0.889) = $5,816. Federal taxable $262,629. Federal tax ~$57,400. CA state ~$24,000. Take-home: $300k − $31,534 − $57,400 − $24,000 = **~$187,066**. **S-Corp:** Net $300k − $3,600 admin = $296,400. Optimizer finds salary ~$110k (37% of net). Employer FICA $8,415 (SS cap $11,439 reached, Medicare $1,595). K-1 = $296,400 − $110,000 − $8,415 = $177,985. Employee FICA $8,415 + addl Medicare $90. SSTB at high income → QBI roughly same fraction on K-1: $177,985 × 20% × 11.1% = $3,953. Federal taxable ~$272,000. Federal tax ~$59,500. CA franchise: 1.5% × $177,985 = $2,670. CA state ~$22,000. Take-home: $287,985 − $8,505 − $59,500 − $22,000 − $2,670 = **~$195,310**.
Takeaway: S-Corp wins by ~$8,200/year — narrower than the Texas non-SSTB example because California's 1.5% franchise tax + 10% top state rate erode the federal-level savings, and SSTB phase-out kills most of the QBI advantage that helps non-SSTB filers. The savings still cover admin costs and clear a defensible margin. For SSTBs in CA at this income, talking to a CPA about California PTET election (which can offset the SALT cap) can add another $2k-$5k of value.
$200k profit, single, NY + NYC, tech (non-SSTB) — NYC trap shrinks advantage
Setup: Brooklyn-based contract engineer. $200,000 net profit, single filer, NY state + NYC resident. Non-SSTB. NYC ignores S-Corp election and taxes the entity as a C-Corp under General Corporation Tax (8.85%).
**LLC default:** Net $200,000. SE base $184,700. SE = SS cap $22,878 + Medicare $5,356 = $28,234. Half SE $14,117. AGI $185,883. Pre-QBI taxable $169,783. Below QBI threshold → full QBI on ($200k − $14,117) = $185,883 → QBI $37,177. Final taxable $132,606. Federal tax ~$24,600. NY state ~$10,500. NYC personal income tax ~$6,300. Take-home: $200k − $28,234 − $24,600 − $10,500 − $6,300 = **~$130,366**. **S-Corp:** Net $200k − $3,600 admin = $196,400. Optimizer salary ~$60,000 (30% floor). Employer FICA $4,590. K-1 = $196,400 − $60,000 − $4,590 = $131,810. Total income $191,810. Employee FICA $4,590. QBI on K-1 = $26,362. Federal taxable ~$149,348. Federal tax ~$28,400. NY state ~$11,000. NYC GCT on entity: 8.85% × $131,810 K-1 = ~$11,665 (NYC ignores S-Corp). NY $25 minimum filing fee. Take-home: $191,810 − $4,590 − $28,400 − $11,000 − $11,665 − $25 = **~$136,130**.
Takeaway: S-Corp still wins by ~$5,800/year, but the NYC GCT cuts the federal-level savings nearly in half. For NYC residents at this income, talk to a CPA about whether the savings + complexity is worth the trouble vs staying LLC default. Above $300k profit the gap widens enough that S-Corp clearly wins despite NYC. Below $150k profit, NYC residents often find LLC default simpler and competitive.
Decision framework and audit-defense playbook
- Don't elect S-Corp until profit is consistent. The break-even calculation assumes a stable income year — if your profit swings between $40k and $150k year-over-year, the admin cost in low years can outrun the savings in high years. Wait for two consecutive years of $80k+ net profit before filing Form 2553. The election is sticky: revoking S-Corp is allowed but the IRS doesn't let you re-elect for 5 years (with limited exceptions).
- Set the salary high enough to pass IRS audit on the first try. Watson v. Commissioner (2010) is the canonical case: a CPA paying himself $24k as S-Corp salary on $200k of net profit — Tax Court found that unreasonable and reclassified $67k of distributions as wages, plus penalties. Modern guidance: 30-40% of net profit for service businesses, validated against BLS Occupational Employment Survey data for your role and metro area. The auto-optimizer in this calculator enforces a 30% floor; do not go below without documented justification (BLS data, Robert Half guides, market salary surveys).
- For California residents, factor the $800 franchise tax minimum into your break-even. CA charges $800/year per LLC even at $0 profit, on top of the 1.5% franchise tax on S-Corp income. This shifts the break-even up by roughly $5k-$8k of profit compared to Texas. If you can structure your business to operate from a no-tax state (genuinely — Texas, Florida, Washington, Tennessee residency rules apply), the math improves materially.
- If you're an SSTB above the QBI single threshold ($201,775 in 2026), the calculus changes. SSTB QBI phases out across $75k single, gone at $276,775. The S-Corp advantage shrinks because the federal-level QBI savings disappear. You're capturing pure SE tax savings (15.3% on the K-1 portion), which is still meaningful but less dramatic than the non-SSTB case. CPA conversation worth having; some SSTBs in this bracket find LLC default simpler.
- Section 199A's W-2 wage limit is the secret reason high-earner non-SSTBs almost always elect. At net profit above $276,775 single (or $478,500 MFJ), a sole prop with $0 W-2 wages gets ZERO QBI deduction — the 50%-of-wages limit is binding at zero. The S-Corp salary creates the W-2 wage base that unlocks QBI. At $400k profit, this single rule alone can be worth $20k+ per year. Run the numbers; the QBI swing dwarfs the SE tax savings at high incomes.
- Don't elect mid-year without understanding partial-year mechanics. If you file Form 2553 in May effective for the current tax year (within the 2-month-15-day window), you'll have a clean full-year S-Corp scenario. If you miss the deadline and elect for next year, the current year stays sole-prop. If you do a late-election under Rev. Proc. 2013-30, you reconstruct salary and distributions retroactively — possible but adds complexity. Most CPAs advise: if you're past the deadline, plan for next year and don't fight the IRS over a late election.
- Reassess in December every year. Three triggers warrant a structural review: (1) profit change >25% year-over-year; (2) state move (especially in or out of CA, NY, NYC); (3) major life event (marriage, divorce, additional pass-through income). The IRS allows S-Corp revocation effective the first day of the next tax year if filed by March 15 of that year. So a December review gives you time to act. Don't elect-and-forget — the right structure for $80k profit isn't necessarily right at $300k.
Limitations and edge cases
Multi-member LLCs with guaranteed payments. If your LLC has multiple members and uses guaranteed payments to allocate income, the partnership tax rules apply (Form 1065, K-1s with guaranteed payment line items) and S-Corp election adds complexity around distribution rules. The calculator models single-member LLCs only.
C-Corp election. Not modeled. C-Corps pay flat 21% federal corporate tax on profits, then dividends are taxed again at the shareholder level (15-20% qualified dividend rate). For high-income earners with retained-earnings strategies (e.g. tech founders planning QSBS Section 1202 exits), C-Corp can win — but the analysis requires modeling distribution timing, qualified small business stock, and state corporate tax. Specialized startup CPA territory.
AMT (Alternative Minimum Tax) and NIIT (3.8% Net Investment Income Tax). NIIT applies to investment income above $200k single / $250k MFJ. AMT can hit certain ISO exercise scenarios and high state-tax filers. Neither is modeled — adds complexity that the tool intentionally skips for clarity.
Multi-state filers and apportionment. If you live in one state and earn in another, or split residency, this calc shows only your primary state. Real multi-state returns require apportionment and credit calculations. Use as a directional reference; real filing needs state-specific software or a CPA.
QBI Form 8995-A precision. The calculator applies the SSTB phase-in fraction with linear interpolation across the $75k/$150k range, which matches the regulation but skips some edge cases (cooperative dividends, REIT/PTP income, multi-business aggregation election). For complex QBI scenarios, your CPA's tax software will compute Form 8995-A precisely.
Sector-specific regimes. Real estate professionals (Section 469 active participation), traders (mark-to-market election), farmers, fishermen, and ministers have specialized tax rules. Use a CPA familiar with your sector.
State PTET (Pass-Through Entity Tax) elections. Many states (CA, NY, NJ, IL, etc.) introduced PTET elections post-TCJA to offset the SALT cap. These can add $2k-$10k of annual savings for high-income filers in those states. The calculator does not model PTET — talk to a state-specific CPA after running the federal-level analysis here.
Year-of-transition complications. The first year you elect S-Corp, you'll have partial-year reporting if mid-year. Quarterly distributions and reasonable-comp documentation need to be in place from day one. The calculator assumes a clean full-year scenario — transition-year planning is tricky and worth a CPA call.
Frequently asked questions
When does S-Corp election make sense for a single-member LLC?▾
Roughly when net profit clears $60,000-$75,000 with a stable trajectory. Below that, the $2,000-$4,500 of annual admin costs (payroll service, Form 1120-S preparation, additional bookkeeping, state franchise tax) exceeds the SE tax savings. Above $80k-$100k profit, S-Corp almost always wins on tax math for non-SSTB professions in low-tax states. For SSTBs (consulting, law, medicine, accounting, financial services) above the QBI single threshold of $201,775, the advantage narrows but doesn't disappear. California, New York, and NYC residents need to factor state-specific extras that shift the break-even up.
What's a 'reasonable salary' that won't trigger an IRS audit?▾
The IRS standard is what you'd pay an employee to do the same work. Court cases (Watson v. Commissioner 2010, Glass Blocks 2013) have settled around 30-40% of net profit for service businesses as a defensible floor. Going below 30% is a major audit flag. Document with Bureau of Labor Statistics Occupational Employment Survey data, Robert Half salary guides, or industry-specific salary reports. Keep records of comparable W-2 salaries for your profession in your metro area. The auto-optimizer in this calculator enforces a 30% floor on the assumption you'll defend it; if you have a lower defensible salary (e.g., very part-time work for the entity), use manual mode and document the basis.
When is the Form 2553 deadline?▾
For calendar-year filers, S-Corp election must be filed within 2 months and 15 days of the start of the tax year you want it to apply — March 15. In 2026 March 15 falls on a Sunday, pushing the deadline to Monday March 16, 2026. Miss it and your current year stays sole-prop; the next valid election applies to the following tax year. Late election relief under Rev. Proc. 2013-30 is available for up to 3 years and 75 days late, but requires reasonable cause and a clean filing history. The calculator shows live deadline countdown based on today's date.
Can I revoke S-Corp election if it stops making sense?▾
Yes, but with restrictions. To revoke S-Corp status, file a statement of revocation with the IRS Service Center where you file Form 1120-S, signed by shareholders holding more than half the outstanding stock. Effective the first day of the next tax year if filed by the 15th day of the third month of that year (March 15). After revocation, the IRS does not allow re-electing S-Corp for 5 years — so think hard before revoking. If your business profile changes structurally (much lower profit, state move, mix shift), revocation can be the right move; for one-time low years, it usually isn't.
How does QBI Section 199A affect the S-Corp decision?▾
Massively, especially for high-income non-SSTB filers. Below the QBI threshold ($201,775 single / $403,500 MFJ in 2026), QBI is automatic — 20% off qualified income, both LLC and S-Corp paths capture it equally. Above the threshold, two limits apply: (1) SSTBs phase out across $75k single / $150k MFJ and disappear at the upper bound; (2) non-SSTBs face a W-2 wage limit (50% of W-2 wages paid by the business). **Sole props pay zero W-2 wages, so non-SSTB sole props above the QBI phase-out end get ZERO QBI deduction.** S-Corp salary creates the W-2 wage base that unlocks QBI for high earners. At $400k profit, this single rule alone can be worth $15k-$25k per year — the QBI swing often dwarfs the pure SE tax savings.
Why does the calculator show a different result for NYC residents?▾
Because New York City ignores the federal S-Corp election and taxes the entity at the city level as a C-Corp under General Corporation Tax (8.85%). Federal and NY state respect the S-Corp election; NYC does not. For a Manhattan or Brooklyn S-Corp owner, the federal-level savings get partially or fully offset by NYC GCT on the entity's income. The calculator includes a warning when state=NY + city=NYC and shows NYC GCT in the S-Corp breakdown. For NYC residents at moderate profit ($150k-$200k), LLC default is often competitive with S-Corp after factoring NYC tax — talk to a CPA familiar with NYC business taxation.
What's the California franchise tax situation for S-Corp LLCs?▾
California charges two layers: (1) $800 annual minimum LLC franchise tax, owed even at $0 profit, payable to the Franchise Tax Board; (2) 1.5% franchise tax on S-Corp net income (which sits on top of the personal income tax on K-1 distributions). For low-profit California S-Corps, the $800 minimum can wipe out the SE tax savings entirely — the break-even shifts up by ~$5k-$8k of profit compared to no-tax states. California also has PTET (Pass-Through Entity Tax) election that can offset the federal SALT cap; talk to a California CPA about whether to elect.
How does S-Corp election interact with retirement contributions?▾
S-Corp owner-employees can contribute to a Solo 401(k) or SEP-IRA based on W-2 wages (the salary), not total business income. This means high-salary, low-distribution scenarios maximize retirement contributions, while low-salary, high-distribution scenarios minimize them — direct tension with the SE-tax-minimization goal. Sole props can contribute based on net SE earnings minus half SE tax, which usually allows higher contributions at the same income level. If maximizing retirement is a priority, factor that against the S-Corp savings. The 2026 Solo 401(k) cap is $72,000 employer contribution + $23,500 employee deferral.
Do I need a separate EIN for S-Corp election?▾
Not if your LLC already has one. Form 2553 is filed using the existing EIN — you're electing tax treatment, not creating a new entity. If you're a sole proprietor without an LLC and want S-Corp, you first need to form an LLC (or corporation) and get an EIN, then file Form 2553. Most people use a single-member LLC + S-Corp election rather than incorporating directly. State-level requirements vary: New York requires a separate state-level S-Corp election (Form CT-6); most states automatically respect the federal election.
What if I miss the March 15 deadline for the current year?▾
Two paths. Path 1: Plan for next year. File Form 2553 in the late-summer or fall window (between August and December), with effective date January 1 of the next tax year. Clean and well-documented. Path 2: Late election relief under Rev. Proc. 2013-30. Available if you intended to elect S-Corp from the start, can show reasonable cause for missing the deadline (illness, professional malpractice, etc.), have filed all returns consistent with S-Corp treatment, and file the late election within 3 years and 75 days of the intended effective date. Requires Form 2553 with 'FILED PURSUANT TO REV. PROC. 2013-30' written across the top. Most tax pros recommend Path 1 unless you have a strong reasonable cause case.
Sources & references
Cross-check every number in this calculator against the primary sources below.
- OfficialIRS Rev. Proc. 2025-32 — 2026 inflation adjustments (brackets, std deduction, QBI thresholds)In force: 2026
- OfficialIRS Form 2553 — Election by a Small Business Corporation
- OfficialIRS Form 1120-S — U.S. Income Tax Return for an S Corporation
- OfficialIRS Section 199A — Qualified Business Income Deduction
- OfficialIRS Form 8995-A — QBI deduction (with W-2 wage limit)
- OfficialIRS Fact Sheet — Wage Compensation for S-Corp Officers
- ReferenceWatson v. Commissioner (T.C. Memo 2010-244) — reasonable salary case
- ReferenceGlass Blocks Unlimited v. Commissioner (T.C. Memo 2013-180) — reasonable salary
- OfficialRev. Proc. 2013-30 — late S-Corp election relief
- OfficialP.L. 119-21 — One Big Beautiful Bill Act (OBBBA) textIn force: 2026
- OfficialSSA — 2026 Social Security wage base announcementIn force: 2026
- OfficialCalifornia FTB — LLC franchise tax and S-Corp tax overview
- OfficialNYC Department of Finance — General Corporation Tax (S-Corp treatment)
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