LLC vs. S-Corp: What It Actually Saves
An S-corp election lets you split your profit into a salary and a distribution, and the distribution escapes self-employment tax. That is the whole trick. It also costs you payroll and a more expensive return, so below a certain profit it is not worth doing. This finds your line.
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Federal figures only, using 2026 rates. This does not include state income tax, state franchise or minimum entity fees (which in some states are large enough to change the answer entirely), state treatment of S-corps, unemployment insurance on your own wages, or the specified-service-trade limits. The qualified business income deduction includes the W-2 wage limit that phases in above $201,750 single and $403,500 joint, for a business that is not a specified service business; doctors, lawyers, consultants and other specified service businesses lose the deduction above that range. It assumes the whole distribution is taken and that your salary is reasonable compensation for the work performed. Reasonable compensation is a facts-and-circumstances test and is the most frequently challenged element of an S-corp position. Estimates only, not tax advice. Talk to a CPA before making the election.
Sources: IRS, S corporation compensation and medical insurance issues; California Franchise Tax Board, S corporations; NYC Department of Finance, General Corporation Tax.