Use this calculator to estimate potential tax savings by electing S-Corporation status compared to operating as a Sole Proprietorship or Partnership. This tool helps illustrate the impact of self-employment tax on distributions versus payroll taxes on a reasonable salary.
Estimated Tax Comparison
Sole Proprietor / Partnership
Total Business Profit: $0.00
Estimated Self-Employment Tax: $0.00
Estimated QBI Deduction: $0.00
Estimated Income Tax: $0.00
Total Estimated Tax Liability: $0.00
S-Corporation
Total Business Profit: $0.00
Owner's Reasonable Salary: $0.00
Distributions (Pass-Through Profit): $0.00
Estimated Payroll Tax (on Salary): $0.00
Estimated QBI Deduction: $0.00
Estimated Income Tax: $0.00
Total Estimated Tax Liability: $0.00
Estimated S-Corp Tax Savings: $0.00
Understanding S-Corporations and Tax Savings
An S-Corporation (S-Corp) is a special tax election available to small businesses that allows profits and losses to be passed through directly to the owner's personal income without being subject to corporate tax rates. The primary tax advantage of an S-Corp, especially for single-owner businesses, lies in how self-employment taxes are handled.
How S-Corps Can Save You Money
For sole proprietors and partners, all business profits are generally subject to self-employment (SE) tax, which covers Social Security and Medicare contributions. This rate is currently 15.3% (12.4% for Social Security up to an annual limit, and 2.9% for Medicare with no limit). Half of this SE tax is deductible from your gross income.
With an S-Corp, you, as the owner, become an employee of your corporation. You must pay yourself a "reasonable salary" for the work you perform. This salary is subject to payroll taxes (Social Security and Medicare), split between the employee and employer portions (each paying 7.65%). However, any remaining profits distributed to you as "distributions" are generally NOT subject to self-employment taxes. This is where the potential tax savings come in.
Key Inputs Explained:
Total Business Profit: This is your business's net income before considering owner's salary or any taxes. It's the starting point for both scenarios.
Owner's Reasonable Salary Percentage of Profit: This is a crucial input. The IRS requires S-Corp owners to pay themselves a "reasonable salary" for the services they provide. This percentage determines what portion of your total business profit will be designated as salary, with the remainder being distributions. Setting this too low can trigger IRS scrutiny.
Owner's Marginal Income Tax Rate: This is your personal income tax bracket. It's used to estimate the income tax liability in both scenarios.
Outputs Explained:
Self-Employment Tax (Sole Prop): The total Social Security and Medicare taxes you'd pay on your entire business profit as a sole proprietor.
Payroll Tax (S-Corp): The total Social Security and Medicare taxes paid on your reasonable salary as an S-Corp owner (both employee and employer portions).
Distributions (S-Corp): The portion of your business profit that is passed through to you as an owner, not subject to payroll taxes.
QBI Deduction: The Qualified Business Income (QBI) deduction (Section 199A) allows eligible self-employed and small business owners to deduct up to 20% of their qualified business income. This calculator applies it to the relevant income in both scenarios.
Total Estimated Tax Liability: The sum of self-employment/payroll taxes and income taxes for each scenario.
Estimated S-Corp Tax Savings: The difference between the total tax liability as a sole proprietor and as an S-Corp, highlighting the potential savings.
Important Considerations:
Reasonable Salary: Determining a "reasonable salary" is critical. It should be comparable to what other businesses pay for similar services. The IRS can reclassify distributions as salary if they deem your salary too low.
Additional Costs: S-Corps come with additional administrative costs, such as payroll processing, more complex tax filings (Form 1120-S), and potentially higher accounting fees. These costs are not factored into this calculator but should be considered.
State Taxes: This calculator focuses on federal taxes. State income and payroll taxes can vary significantly and are not included.
Tax Situations Vary: This calculator provides an estimate. Your actual tax situation depends on many factors, including other income, deductions, credits, and specific tax laws. Always consult with a qualified tax professional for personalized advice.
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function calculateSCorpSavings() {
// Constants (2024 values for Social Security limit)
var SS_LIMIT = 168600;
var SE_SS_RATE = 0.124; // 12.4%
var SE_MED_RATE = 0.029; // 2.9%
var EMP_SS_RATE = 0.062; // 6.2% (employee/employer share)
var EMP_MED_RATE = 0.0145; // 1.45% (employee/employer share)
var QBI_RATE = 0.20; // 20%
// Get input values
var totalBusinessProfit = parseFloat(document.getElementById("totalBusinessProfit").value);
var ownerSalaryPercentage = parseFloat(document.getElementById("ownerSalaryPercentage").value);
var ownerMarginalTaxRate = parseFloat(document.getElementById("ownerMarginalTaxRate").value) / 100;
// Validate inputs
if (isNaN(totalBusinessProfit) || totalBusinessProfit < 0) {
alert("Please enter a valid Total Business Profit.");
return;
}
if (isNaN(ownerSalaryPercentage) || ownerSalaryPercentage 90) {
alert("Please enter a valid Owner's Salary Percentage (between 10% and 90%).");
return;
}
if (isNaN(ownerMarginalTaxRate) || ownerMarginalTaxRate 0.5) {
alert("Please enter a valid Owner's Marginal Income Tax Rate (between 0% and 50%).");
return;
}
// — Scenario 1: Sole Proprietor / Partnership —
// Self-Employment (SE) Tax Calculation
var seTaxableIncome = totalBusinessProfit;
var socialSecurityTaxSP = Math.min(seTaxableIncome, SS_LIMIT) * SE_SS_RATE;
var medicareTaxSP = seTaxableIncome * SE_MED_RATE;
var totalSETaxSP = socialSecurityTaxSP + medicareTaxSP;
// Income Tax Calculation
var deductibleSETaxSP = totalSETaxSP * 0.5; // Half of SE tax is deductible
var incomeBeforeQBI_SP = totalBusinessProfit – deductibleSETaxSP;
var qbiDeductionSP = incomeBeforeQBI_SP * QBI_RATE;
var taxableIncomeSP = incomeBeforeQBI_SP – qbiDeductionSP;
var incomeTaxSP = taxableIncomeSP * ownerMarginalTaxRate;
// Total Tax SP
var totalTaxSP = totalSETaxSP + incomeTaxSP;
// — Scenario 2: S-Corporation —
// Owner's Salary & Distributions
var ownerSalary = totalBusinessProfit * (ownerSalaryPercentage / 100);
var distributions = totalBusinessProfit – ownerSalary;
// Payroll Tax Calculation (on Owner's Salary)
var employeeSocialSecurityTaxSC = Math.min(ownerSalary, SS_LIMIT) * EMP_SS_RATE;
var employerSocialSecurityTaxSC = Math.min(ownerSalary, SS_LIMIT) * EMP_SS_RATE;
var employeeMedicareTaxSC = ownerSalary * EMP_MED_RATE;
var employerMedicareTaxSC = ownerSalary * EMP_MED_RATE;
var totalPayrollTaxSC = employeeSocialSecurityTaxSC + employerSocialSecurityTaxSC + employeeMedicareTaxSC + employerMedicareTaxSC;
// Income Tax Calculation
var deductibleEmployerPayrollTaxSC = employerSocialSecurityTaxSC + employerMedicareTaxSC; // Employer's share is a business deduction
var incomeBeforeQBI_SC = totalBusinessProfit – deductibleEmployerPayrollTaxSC; // Total business income after employer payroll tax deduction
var qbiDeductionSC = incomeBeforeQBI_SC * QBI_RATE;
var taxableIncomeSC = incomeBeforeQBI_SC – qbiDeductionSC; // Total pass-through income subject to income tax after QBI
var incomeTaxSC = taxableIncomeSC * ownerMarginalTaxRate;
// Total Tax S-Corp
var totalTaxSC = totalPayrollTaxSC + incomeTaxSC;
// — Tax Savings —
var taxSavings = totalTaxSP – totalTaxSC;
// Display Results
document.getElementById("displayTotalBusinessProfitSP").innerText = totalBusinessProfit.toFixed(2);
document.getElementById("totalSETaxSP").innerText = totalSETaxSP.toFixed(2);
document.getElementById("qbiDeductionSP").innerText = qbiDeductionSP.toFixed(2);
document.getElementById("incomeTaxSP").innerText = incomeTaxSP.toFixed(2);
document.getElementById("totalTaxSP").innerText = totalTaxSP.toFixed(2);
document.getElementById("displayTotalBusinessProfitSC").innerText = totalBusinessProfit.toFixed(2);
document.getElementById("ownerSalarySC").innerText = ownerSalary.toFixed(2);
document.getElementById("distributionsSC").innerText = distributions.toFixed(2);
document.getElementById("totalPayrollTaxSC").innerText = totalPayrollTaxSC.toFixed(2);
document.getElementById("qbiDeductionSC").innerText = qbiDeductionSC.toFixed(2);
document.getElementById("incomeTaxSC").innerText = incomeTaxSC.toFixed(2);
document.getElementById("totalTaxSC").innerText = totalTaxSC.toFixed(2);
document.getElementById("taxSavings").innerText = taxSavings.toFixed(2);
}
// Run calculation on page load with default values
window.onload = calculateSCorpSavings;