S-Corp vs LLC Tax Calculator 2026: Reasonable Salary & Section 199A QBI
Calculate self-employment tax savings, Section 199A Qualified Business Income (QBI) deduction, and the optimal IRS-compliant reasonable salary for an S-Corporation vs LLC.
S-Corp vs LLC Reasonable Salary Optimization
Model SECA tax elimination, Section 199A pass-through deductions, and administrative overhead.
S-Corp election yields significant tax savings over LLC sole proprietorship at $150,000 profit.
| Tax Metric / Breakdown | LLC / Sole Proprietorship | S-Corporation (Optimized) | Difference |
|---|---|---|---|
| Net Business Profit | $150,000 | $150,000 | $0 |
| Owner W-2 Salary (FICA Subject) | $0 (100% SECA) | $75,000 | +$75,000 |
| K-1 Distributions (FICA Exempt) | $0 (All taxed) | $69,263 | +$69,263 |
| Self-Employment / FICA Payroll Tax | $21,194 | $11,475 | -$9,719 saved |
| Section 199A QBI Deduction 20% Pass-Through Deduction | $27,881 | $13,853 | -$14,028 (salary reduces S-Corp QBI) |
| Est. Federal Income Tax | $19,612 | $24,145 | $4,533 |
| Annual Corporate Compliance & Fees | $0 | -$2,500 | +$2,500 cost |
| Net Take-Home Cash Flow | $109,193 | $111,880 | +$2,686 |
Reviewed data sources
Reviewed October 18, 2026. Calculations use current public tax guidance and published source data.
1. Enter the tax scenario
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2. Review assumptions
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Planning estimate, not tax advice
LevyIO calculators are educational planning tools. Actual federal, state, payroll, property, sales, and local tax results can change with filing status, credits, deductions, residency, employer withholding, address-level rates, and current forms. Verify final filing positions with IRS or state guidance, payroll records, tax software, or a qualified tax professional.
Frequently Asked Questions
What is the Section 199A QBI Deduction in 2026?
IRC Section 199A allows eligible self-employed individuals and small business owners to deduct up to 20% of their Qualified Business Income (QBI). In 2026, the deduction begins phasing out at taxable incomes of $197,300 for single filers and $394,600 for married couples filing jointly. Specified Service Trades or Businesses (SSTBs) lose the deduction completely above the phaseout band ($247,300 single / $494,600 married).
How does an S-Corp save self-employment tax?
In an LLC or sole proprietorship, 100% of net profit is subject to the 15.3% Self-Employment Tax (SECA). With an S-Corporation election, the owner pays themselves a "reasonable salary" subject to FICA payroll tax, while the remaining profit is distributed as a dividend, which is 100% exempt from FICA/SECA taxes.
What constitutes a "Reasonable Salary" according to the IRS?
The IRS requires S-Corp shareholder-employees to be paid fair market value compensation for the services they provide to the corporation before distributions are taken. Factors include duties performed, volume of business, time devoted, and prevailing market wages for similar roles. Benchmarks typically fall between 40% and 60% of net profits for service businesses.
At what profit level does electing S-Corp status become worthwhile?
Because an S-Corp requires annual corporate tax return filing (Form 1120-S), automated payroll processing, and state franchise fees (typically totaling $1,500 to $3,000 annually), electing S-Corp status generally becomes profitable once net business profits consistently exceed $60,000 to $80,000 per year.