S corp tax savings calculator

It replaces self-employment tax on all of the LLC's profit with payroll tax on a salary only. With $120,000 of profit and a $60,000 salary, the payroll tax saving is about $7,775 a year before the extra costs of running payroll and an S-corp return.

There is no single number: it depends on the salary you can justify and what payroll and the extra return cost you. In practice the saving rarely covers the costs until profit is well above a reasonable salary. With $40,000 of profit and a $30,000 salary, this calculator shows a net loss of $1,438.

What the business would pay someone else to do your job. The IRS looks at your training and experience, duties, time spent, what comparable businesses pay, and the company’s dividend history. Paying yourself too little to cut payroll tax is the most common S-corp audit issue.

No. It compares federal employment taxes only. Income tax shifts too: the employer half of payroll tax is deductible, and your salary does not count toward the 20% qualified business income deduction. Ask a tax preparer to model your full return before electing.

File Form 2553 with the IRS, no more than 2 months and 15 days after the start of the tax year you want it to apply to. Late elections can often be fixed under Rev. Proc. 2013-30 if you had reasonable cause.

Some do. California and Illinois tax S corps at the entity level, the District of Columbia does not recognize the election, and the Texas franchise tax and Tennessee franchise and excise tax apply whatever the federal election. Include any state cost in the extra costs field.