LLC vs S corp: what the election saves you in 2026
An LLC is a legal entity; an S corp is a tax election that the LLC can make. Enter your profit and the salary you would pay yourself to see the difference.
S corp election saves per year
$3,858
LLC taxed by default: $34,937 · as an S corp: $31,080
| SE tax as an LLC | $16,841 |
| Payroll taxes on the salary (both halves, FUTA, state) | $8,695 |
| Federal income tax: LLC / S corp | $11,374 / $13,412 |
| California income tax: LLC / S corp | $5,912 / $6,085 |
| California tax on the S corp itself | $878 |
| Payroll and filing costs | $2,000 |
| QBI deduction: LLC / S corp | $18,934 / $11,525 |
Computed by Radif Partners from IRS documents for tax year 2026 · How we calculate · no email asked, nothing sold
An LLC and an S corp are not two rival choices: an LLC with one owner is taxed like a sole proprietorship unless it files Form 2553 to be taxed as an S corporation. Without the election, all of the profit carries the 15.3% self-employment tax, up to $184,500 for the Social Security part in 2026. With it, only the salary you pay yourself carries payroll tax, and the rest reaches your return as K-1 income free of it. That gap is the whole saving, and it has to pay for running a payroll, a second tax return and the extra state taxes some states put on S corporations. For a single filer with no state tax and $2,000 of yearly payroll and filing costs, $120,000 of profit and a $50,000 salary save $5,312; $60,000 of profit and a $35,000 salary save $673. With a salary at 45% of profit, the election starts to pay at about $28,000 of profit.
The calculator compares the same business twice. On the left, the LLC taxed by default: Schedule C, self-employment tax on 92.35% of profit, half of it deducted, the QBI deduction on what remains. On the right, the same LLC after the S election: a salary run through payroll, both halves of Social Security and Medicare on that salary, federal and state unemployment tax, then the remaining profit taxed as ordinary income with the QBI deduction. State income tax, state fees and any state tax on S corporations are added on both sides where they apply.
LLC or S corp at your profit
S corp saves
$4,024
| LLC taxed by default | $25,413 |
| S corp, $2,000 payroll costs | $21,389 |
Single filer, no state tax.
Where the saving comes from, line by line
Take $120,000 of profit and a $50,000 salary, single filer. As a default LLC, self-employment tax is $16,955. As an S corp, payroll taxes on the salary come to $7,692, both halves together, including $42 of federal unemployment tax. The difference in federal income tax goes the other way, because the employer half of payroll tax is a business expense while half of SE tax is an adjustment, and because the QBI deduction now applies only to the K-1 profit, not to the salary: $19,084 of QBI deduction as an LLC against $12,827 as an S corp. Income tax is $11,506 on one side and $13,457 on the other.
The smaller QBI deduction is the part most quick calculators leave out, and it eats a visible share of the payroll saving at mid-range profits. So does the cost of payroll. A payroll service, quarterly Forms 941, a yearly Form 940, W-2 filing and the Form 1120-S return cost money or time; the calculator uses $2,000 a year as a placeholder you should replace with your own quotes.
The salary is the lever, and the IRS watches it
The lower the salary, the bigger the saving, which is exactly why the IRS requires "reasonable compensation" for the work an owner does before any distribution (IRS, S corporation compensation). There is no published percentage. Courts look at what the business would pay someone else for the same work, the owner's training and hours, and what similar firms pay. A designer billing $120,000 who does all the work alone will have trouble defending a $20,000 salary. The reasonable salary calculator shows how the saving shrinks as the salary rises toward a defensible level.
Above the Social Security wage base
At high profits the saving narrows for another reason: the 12.4% Social Security part of SE tax stops at $184,500 of net earnings in 2026. On $250,000 of profit with a $110,000 salary, the election saves $7,482, less than the arithmetic of 15.3% on the distribution would suggest, because only 2.9% Medicare and the 0.9% Additional Medicare Tax were due on the top slice anyway.
States that change the answer
Federal law is the same everywhere, but a handful of states and cities put their own tax on S corporations. California charges S corporations a franchise tax of 1.5 % of net income with a $800 minimum, where the LLC pays $800 plus a fee based on gross receipts once California income reaches $250,000. New York City does not recognize the S election at all and taxes the company under its General Corporation Tax. Texas applies its franchise tax to LLCs and S corporations alike, though a business under the no-tax-due revenue threshold owes nothing. In these places the comparison can flip, and the state pages carry the detail, each with the agency page it was read on. Choose your state in the calculator: the line "tax on the S corp itself" appears when one applies.
What does not change
Liability protection comes from the LLC, not from the election: an LLC taxed as an S corp protects your personal assets exactly as before. The state fees of the LLC stay too. And the election is not reversible at will: after revoking it, a business generally has to wait five years to elect again. It is filed on Form 2553, no later than two months and fifteen days after the start of the tax year it should apply to, which is March 15 for a calendar year. The S election guide has the deadline calculator.
A reading of the result
When the calculator shows a saving of a few hundred dollars, the honest reading is "no": one year of higher bookkeeping costs, a missed payroll deposit penalty or a salary challenged by the IRS wipes it out. When it shows several thousand dollars at a salary you could defend, the election is worth a conversation with a CPA, who will look at what the calculator cannot see: retirement contributions, which follow the salary in an S corp; health insurance, which a more-than-2% shareholder must run through payroll to deduct; and your state's own rules.