S Corp Tax StrategiesHow much does an S corp save? Here's the math

The short answer

An S corp saves Social Security and Medicare tax on the profit left after a reasonable salary. The more profit sits above a fair salary for your work, the more it can save. The costs of running an S corp come off the top: a payroll provider, a second tax return, and unemployment tax on your wage.

Without the election, an LLC owner pays self-employment tax of 15.3% on 92.35% of the profit. With the election, the 15.3% applies only to the salary paid through payroll. Half of that comes from the company and half from your paycheck.

Three worked examples

These owners are made up, the numbers are rounded, and each one assumes the salary shown is reasonable for the work. Your numbers will differ.

• $40,000 of profit, $30,000 salary. Self-employment tax as an LLC: about $5,650. Payroll tax as an S corp: $4,590. Difference before costs: about $1,060 a year.
• $90,000 of profit, $50,000 salary. Self-employment tax as an LLC: about $12,715. Payroll tax as an S corp: $7,650. Difference before costs: about $5,065 a year.
• $150,000 of profit, $70,000 salary. Self-employment tax as an LLC: about $21,195. Payroll tax as an S corp: $10,710. Difference before costs: about $10,485 a year.

Here's how the middle example works. As an LLC, 92.35% of $90,000 is $83,115, and 15.3% of that is about $12,715. As an S corp, 15.3% of the $50,000 salary is $7,650. The rest of the profit passes through to you on a K-1, where you pay income tax on it but no Social Security or Medicare tax.

What the examples leave out

Costs come first. Expect a monthly bill from the payroll provider. The company files its own return, Form 1120-S, and each owner gets a K-1. You pay federal unemployment tax (up to $42 a year on the first $7,000 of your wage, in most states) plus your state's unemployment tax. Some states add an S corp tax or fee.

Income tax moves a little too. You lose the deduction for half of self-employment tax. The company deducts its half of the payroll tax. The qualified business income deduction is figured on the profit left after your salary, so it gets smaller. Above an income level set each year, that deduction can also depend on the wages the business pays, which can work in your favor. We run each of these with your numbers.

When the switch pays

It usually pays when profit is steady, it's clearly more than a fair salary for your work, and you're ready to run payroll on a schedule. In the examples, the saving grows as more profit sits above the salary.

It may not pay yet when profit is small, when a fair salary would use up most of the profit, or when you already earn wages at a job that count toward the yearly Social Security limit ($184,500 for 2026). Then waiting a year is often the better move, and we tell you the profit level that would change the answer.

LLC or S corp?

Your LLC can stay an LLC and still be taxed as an S corp. The LLC is the legal company your state recognizes. The S corp is the tax status you choose by filing Form 2553. Here's when Form 2553 is due.

Who runs the numbers with you

Steven Palmieri leads the practice, and he's who you'll talk with. The same people stay with your books, your payroll setup and your return, so you never have to explain the year to someone new. Steven's own site, stevenpalmieri.com, has more on the practice.

Services on this site are provided by Steven Palmieri, Dallas, Texas. Send a question through the form on this page, or pick a time on the calendar.

What happens on the free call

You book a time or send the form. We meet on video for 30 minutes. Bring a rough profit figure and last year's return if you have it. We run the S corp math with your numbers and tell you whether to switch, wait, or skip. The call is free, and booking it doesn't hire us. Once you sign our letter naming the job and what it costs, the paid work starts.

If an S corp isn't the right move this year, you'll hear that on the call. For example, an owner who already earns a full salary at another job may save less than expected, and the company structure may matter more.

Questions owners ask about S corp savings

Should my LLC elect S corp this year? We answer that from your profit, the salary your work supports, and your timing. If the usual deadline has passed, we check whether late-election relief fits.

What if I took draws all year? We can start a salary now and look at the earlier months with you. The owner draws page walks through it.

How do I set the salary? It has to fit the work you do. The reasonable salary page shows the factors the IRS lists.

Get your own S corp numbers