S-Corp vs LLC Taxes: Which Saves More in 2026?

The S-Corp election question comes up with almost every LLC client we work with. The short answer: if your LLC nets $50,000 or more per year, you are almost certainly overpaying taxes and S-Corp election deserves serious analysis. Here is exactly how to think about it.

The Core Tax Difference Between LLC and S-Corp

As a single-member LLC or sole proprietor, 100% of your net profit is subject to self-employment tax at 15.3% (on the first $160,200 in 2024, then 2.9% above that). This is on top of your federal and state income tax.

When you elect S-Corp status, you become an employee of your own company. You pay yourself a reasonable salary — which is subject to payroll taxes — and take the rest of your profits as owner distributions, which are NOT subject to self-employment tax or payroll taxes.

Real S-Corp Savings Calculations

Here are the actual numbers at different income levels:

• $75,000 net profit: LLC pays ~$10,597 SE tax. S-Corp (salary $45,000) pays ~$6,358. Saves ~$4,239/year.
• $100,000 net profit: LLC pays ~$14,130 SE tax. S-Corp (salary $60,000) pays ~$8,478. Saves ~$5,652/year.
• $150,000 net profit: LLC pays ~$19,526 SE tax. S-Corp (salary $75,000) pays ~$10,597. Saves ~$8,929/year.
• $200,000 net profit: LLC pays ~$21,451 SE tax. S-Corp (salary $85,000) pays ~$11,998. Saves ~$9,453/year.

The Reasonable Salary Requirement

The IRS requires S-Corp owner-employees to pay themselves a reasonable salary for their role. This is the most audited aspect of S-Corp compliance. Too low, and the IRS recharacterizes distributions as wages, creates penalties, and back-taxes the difference. Too high, and you eliminate your savings.

Reasonable salary is determined by what you would pay someone else to do your job — based on industry, experience, hours worked, and comparable market rates. We determine this for every S-Corp client using Bureau of Labor Statistics data and industry benchmarks.

When S-Corp Election Does NOT Make Sense

S-Corp is not the right choice for everyone. Cases where we typically do NOT recommend it:

• Net profit below $50,000: The administrative costs (separate payroll, business return) often exceed the tax savings at this income level.
• Heavy losses expected: S-Corp losses pass through to shareholders but are limited by basis rules. LLC structures can offer more flexibility.
• Qualified opportunity zone investments: Certain tax strategies work better in LLC/partnership structures.
• Specific state rules: Some states (notably California) impose S-Corp fees that can offset federal savings. We always model state impact.

The Cost of Running an S-Corp

S-Corp requires payroll (quarterly 941s, annual 940, W-2 issuance), a separate Form 1120-S business return, and potentially state annual reports. Our all-in S-Corp service includes all of this in a flat-fee package. For most qualifying clients, the additional cost is $500-$1,500 more than a simple LLC return — against savings of $4,000-$10,000+.

How to Make the S-Corp Election

To elect S-Corp status for an existing LLC, you file IRS Form 2553 — Election by a Small Business Corporation. For current-year effectiveness, this must be filed by March 15 for calendar-year businesses. Late elections are possible through a revenue procedure that allows backdating in certain circumstances — contact us immediately if you think you missed the window.

The Bottom Line

For most self-employed people earning $50,000+ in net profit, S-Corp election is the highest-ROI tax move available. The savings are legal, sustainable, and compound year over year. The question is not whether to consider it — it is whether your numbers qualify and whether the state-specific factors work in your favor.

We run this analysis for every LLC client at no extra charge. In 15 minutes, we can tell you exactly how much S-Corp election would save you and whether it makes sense for your situation.