S-Corp Tax Savings Calculator
Estimate how much you could save in SE taxes by electing S-Corp status.
Salary you'd pay yourself as S-Corp employee
Accountant fee for S-Corp returns
Tax Information Notice
This content is for informational and educational purposes only. It does not constitute tax, legal, or financial advice. Tax laws change frequently. Always consult a qualified CPA or Enrolled Agent for your specific situation.
Understanding S-Corp Tax Savings
The S-Corp election is one of the most powerful tax strategies for self-employed freelancers and consultants earning over $80,000/year. It works by splitting your income into two buckets: a W-2 salary (subject to payroll taxes) and an owner distribution (not subject to self-employment tax).
For example: if you earn $150,000/year and pay yourself a $75,000 salary, you pay SE/payroll tax only on the $75,000. The other $75,000 flows to you as a distribution — saving roughly $10,000–$12,000/year in SE taxes, net of compliance costs.
The trade-off is complexity: you must run payroll, file a separate S-Corp tax return (Form 1120-S), and maintain proper corporate records. Use the calculator above to see if the savings justify the costs for your specific income level.
Frequently Asked Questions
How much do you need to earn before an S-Corp makes sense?
Most CPAs recommend considering an S-Corp election once your net self-employment income exceeds $80,000–$100,000/year. Below that threshold, the annual compliance costs ($1,500–$3,000 for S-Corp tax returns) typically exceed the SE tax savings. The calculator above shows your specific break-even point.
How does an S-Corp save taxes for freelancers?
As a sole proprietor, you pay 15.3% self-employment tax on 100% of your net profit. With an S-Corp, you split income between a "reasonable salary" (subject to payroll taxes) and an owner distribution (not subject to SE tax). The savings come from the portion of profit taken as a distribution.
What is a "reasonable salary" for an S-Corp?
The IRS requires S-Corp owners to pay themselves a "reasonable salary" comparable to what a similar employee would earn. There's no exact formula, but a common starting point is 40–60% of your total S-Corp income. Setting the salary too low is a red audit flag. Setting it higher reduces your SE tax savings.
What are the costs of maintaining an S-Corp?
Ongoing S-Corp costs include: state filing fees ($50–$800/year depending on state), payroll processing ($50–$150/month with a service like Gusto), and S-Corp tax return preparation by a CPA ($800–$2,500/year). The calculator deducts these compliance costs from your gross savings to show your net benefit.
Can I switch back from an S-Corp to sole proprietorship?
Yes, but it involves paperwork and potential tax consequences. S-Corp elections can generally be revoked, but the IRS imposes a 5-year waiting period before re-electing. This makes the S-Corp decision semi-permanent, which is why it's important to calculate whether the savings actually justify the costs.