Reasonable compensation
The salary must be defensible for your role and industry. Pay too little and the IRS can reclassify distributions as wages, with penalties.
Should your profit
be taxed as an S-corp?
For owners earning real profit, electing S-corporation status can cut the self-employment tax bill substantially. The calculator below models the exact mechanics, self-employment tax against payroll tax, the QBI deduction, and the net benefit, in the same way we would on a call.
S-corp versus sole proprietor, computed line by line.
Enter your numbers and watch the comparison update. It applies current federal payroll rates, the Social Security wage cap, and the 20% QBI deduction. Treat the result as a starting point for the conversation, not filed advice.
Your business
Net business income$180,000
Where the savings come from.
The election is mechanical, not magic. Each step below is a line the calculator computes for you.
01
Self-employment tax, in full
As a sole proprietor or single-member LLC, 15.3% self-employment tax applies to 92.35% of your net business income, up to the Social Security wage cap. On strong profit, that is the largest line on the return.
02
Payroll tax, on salary only
Elect S-corp status and you pay yourself a reasonable W-2 salary. FICA applies to that salary, the remaining profit is taken as a distribution and is not subject to self-employment or payroll tax.
03
The QBI deduction, both sides
The 20% Qualified Business Income deduction shifts with the structure: salary is excluded from the S-corp's QBI base. We model the income-tax effect on each side so the comparison is honest.
04
The net benefit
Payroll savings, less any change in income tax and the cost of running payroll. The number that remains is the real reason to elect, or to wait.
The number is the start, not the decision.
Payroll and filing cost
An S-corp means running payroll and filing a separate return. We weigh that real cost against the savings before recommending the election.
State treatment
Some states tax S-corps differently or impose franchise fees. We confirm the picture for California and any state where you operate.
Timing the election
Elections have deadlines and, occasionally, late-relief paths. We make sure the timing lines up with your year.
Pressure-test your estimate with a partner.
Send your figures and a line about your situation. Ian Lazar reads every inquiry and replies, usually within a business day.
- 21800 Oxnard Street, Suite 660
Woodland Hills, CA 91367