How much would an S-corp
save your business?
Enter your profit and the salary you'd pay yourself. The calculator compares a sole proprietor with an S-corp, and with a SEP-IRA and an HSA on top, at 2026 federal rates, after the cost of running the S-corp. Built for a small business owner deciding whether to elect.
Your numbers
Revenue minus expenses, before you pay yourself.
The W-2 pay you'd take. It has to be a reasonable salary for the work.
Payroll service and the extra business return. About $2,000 is typical.
How to read the scenarios
An S-corp saves payroll tax on the profit you take as distributions instead of salary. That's the whole effect, and it's why the S-corp line can show a higher taxable income than the sole proprietor while still owing less in total: the payroll-tax savings outweigh it.
The SEP-IRA line adds the business's contribution to your retirement account, up to a quarter of your salary. It lowers this year's tax, but the money is locked in retirement savings, not cash in hand. The HSA line adds a health savings account contribution on top: the self-only limit for a single filer, the family limit for a married couple. It assumes a health plan that qualifies for an HSA.
A sole proprietor can open a SEP-IRA and an HSA too, without electing. So when those lines save more, part of the difference comes from the accounts, not the S-corp.
Can you defend that salary?
- •The IRS requires a market-rate salary before any distributions, and an underpaid owner is the classic audit target
- •Base the salary on industry pay data, your role and your hours
- •Document how you set it, and revisit it when the business changes
- •A salary that's a small fraction of profit is the pattern auditors look for
Federal only, on purpose
State tax is left out the same way in every scenario, so the difference between them still holds. But some states and cities tax S-corps directly, and that comes straight out of the federal savings. Our S-corp election page covers what your state can take back.
S-corp consulting for our bookkeeping clients
We offer S-corp consulting to our bookkeeping clients only. For them, we work out whether and when to elect, set a reasonable salary you can defend, run the payroll, and keep the books ready for the 1120-S. If you'd like our help, please start with a free bookkeeping estimate.
Common questions
- What does the calculator assume?
- 2026 federal income tax and payroll tax, the standard deduction, and the full 20% qualified business income deduction. The HSA line assumes a health plan that qualifies for an HSA. It leaves out state and local tax, other income and itemized deductions.
- Why does the salary matter so much?
- An S-corp saves payroll tax only on profit you take as distributions, so a lower salary shows bigger savings. But the IRS requires a reasonable salary, the pay you'd need to give someone else to do your job, and can reclassify distributions as wages if it's too low.
- Why is it federal only?
- State tax is left out the same way in every scenario, so the difference between them holds. But some states and cities tax S-corps directly, which comes straight out of the federal savings. Our S-corp election page covers the biggest exceptions.
- What does an S-corp cost to run?
- Our examples assume about $2,000 a year for payroll service and the extra business return. Enter your own figure and the calculator subtracts it from the savings.
- Can you help me decide whether to elect?
- Yes, if you're a bookkeeping client. We offer S-corp consulting to our bookkeeping clients only: whether and when to elect, a reasonable salary, payroll, and books ready for the 1120-S. Start with a free bookkeeping estimate.
- Why do you ask for my email?
- So we can show you the results and follow up about what the election would take for your business. You'll get a couple of follow-ups from Jeff. Unsubscribe anytime.
The salary is the decision
the savings depend on.
Our S-corp consulting is for bookkeeping clients: we set a reasonable salary you can defend, run the payroll, and keep the books ready for the 1120-S. Start with a free estimate.
Educational, not professional advice. This calculation uses the figures you entered and 2026 federal tax rates, and doesn't account for your full situation. We give that advice to our bookkeeping clients. To become one, get a free estimate. Invisible LLC isn't your accountant until we have an engagement letter.
- Federal tax only: no state or local tax. It's left out the same way in every scenario, so the difference between them holds; your state may take some of it back.
- The S-corp figures use the salary you entered. The IRS requires a reasonable salary before any distributions.
- An S-corp has ongoing costs (payroll, bookkeeping, the 1120-S) that offset some of the savings; the net figure subtracts the amount you entered.
- Assumes the full 20% qualified business income deduction: your business isn't a specified service business, or you're below the Section 199A threshold.