How Much Can I Save with an S-Corp Election?
Find out if electing S-Corporation status will lower your self-employment tax bill after accounting for payroll, corporate tax filings, and accounting overhead.
Business Profit & Salary Parameters
Revenue minus business expenses
$
50% of profit ($60,000)
Payroll software & Form 1120-S filing
$
Estimated Net Annual Savings
$6,742
After deducting $1,800 in annual payroll & compliance costs
✓ Strong S-Corp Candidate ($60k+ Net Profit)
Sole Proprietor / LLC
Net Profit:
$120,000
Subject to SE Tax:
$110,820
SE Tax (15.3%):
$16,955
Overhead Costs:
$0
Total Payroll/SE:
$16,955
S-Corporation
W-2 Salary:
$60,000
Distributions:
$60,000
FICA on Salary:
$9,180
Corp Overhead:
$1,800
Total Tax & Costs:
$10,980
Frequently Asked Questions About S-Corp Elections
Understanding S-Corp elections, IRS rules, and tax compliance.
As a Sole Proprietor or single-member LLC, you pay 15.3% self-employment tax on 100% of your net business
profit. With an S-Corporation election, you only pay FICA taxes (15.3%) on your reasonable W-2 salary. The
remaining profit is distributed as dividends/draws, completely free from the 15.3% self-employment tax.
An S-Corp election typically becomes profitable once your annual net profit exceeds $60,000 to $80,000.
Below that amount, the annual costs of running payroll, filing Form 1120-S corporate tax returns, and state
franchise fees often offset the tax savings.
The IRS requires S-Corp shareholder-employees to take a 'reasonable compensation' for the services they
provide before taking distributions. A common rule of thumb is a 50/50 or 60/40 split between salary and
distributions, benchmarking against Bureau of Labor Statistics (BLS) salary data for your role and industry.
Annual maintenance generally ranges from $1,200 to $2,500. This includes payroll software fees (e.g., Gusto
~$40-60/mo), Form 1120-S corporate tax preparation by a CPA ($800-$1,500), and state annual report or
franchise taxes (such as California's $800 minimum franchise tax).