Our S Corp Tax Calculator estimates whether a business owner can benefit from being taxed as an S Corporation compared to a sole proprietor and any tax savings that could be gained from making the switch. If you're interested in seeing if our company SLP Wealth could help you with your S Corp needs, please contact logan.foltz@slpwealth.com and share a bit about what you're looking for.
What is your anticipated Business Gross Revenue in 2024
Anticipated business expenses in 2024 (exclude wages)
What Would Be Your S Corp W-2 Reasonable Compensation? (based on profession, hours, and location)
How much in W-2 wages do you pay to employees? (if you have no employees besides yourself, list $0)
Tax Filing Status
List your spouse's income
Do you earn money from a W-2 job unrelated to your business?
List how much you earn from this unrelated W-2 job
Does your business primarily provide professional services?
S Corp Additional Expenses
Additional Cost of S Corp Tax Preparation
Cost of Payroll Provider
State Incorporation/Annual Fee
Other S-Corp Specific Expenses
| Result | |
| Net Benefit of S Corp |
Components of Net Benefit of S Corp Calculation
| Payroll Tax Savings from S Corp | |
| QBI Tax Savings from S Corp | |
| Additional S Corp Filing Costs |
Business Performance
| Sole-Proprietor | S-Corp | |
| Gross Revenue | ||
| Business Expenses | ||
| Net Profits | ||
| W-2 Wages | ||
| Business Distributions | ||
| QBI Deduction |
Payroll Taxes
| Sole-Proprietor | S-Corp | |
| Social Security Tax | ||
| Medicare Tax | ||
| Additional Medicare Tax | ||
| FUTA Tax | ||
| Total Payroll Taxes |
Your Max Retirement Contribution Limits (estimated)
| Sole-Proprietor | S-Corp | |
| Solo 401k | ||
| SEP IRA | ||
| Simple IRA | ||
| IRA (Backdoor, Roth, or Traditional) |
QBI Section
| Sole-Proprietor | S-Corp | |
| Qualified Business Income (QBI) | ||
| QBI Deduction / 199A Deduction | ||
| Total Taxable Income After Standard Deduction | ||
| Phaseout status | ||
| Total federal tax savings |
Detailed QBI Calculations
| Below Phaseout Calculations | ||
| 20% QBI | ||
| 20% Taxable income | ||
| Deduction Allowed (lessor of these 2 numbers) | ||
| In Phaseout Range Calculations | ||
| 20% QBI | ||
| 50% of wages paid | ||
| Reduction of QBI | ||
| Deduction Allowed | ||
| Above Phaseout Range Calculations | ||
| 20% QBI | ||
| 50% of wages paid | ||
| Deduction Allowed (lessor of these 2 numbers, or 0 if you're a professional service business) | ||
Is SLP Wealth right for your financial planning + tax planning needs?
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What is an S Corp?
An S-corporation functions as a pass-through entity, allowing you to report business income and losses on your tax return. As a result, taxes are calculated at individual income tax rates, preventing double taxation on corporate income.
An LLC is a legal entity, but the IRS disregards it for tax purposes. This means that a single-member LLC is automatically taxed as a sole proprietorship, and a multi-member LLC is taxed as a partnership. However, by filing IRS Form 2553, the default tax treatment can be changed, and the LLC can elect to be taxed as an S-corporation.
Why consider S Corp?
When you elect S-corp tax treatment, you earn money through two means:
- Salary: The amount you pay yourself via W-2 wages.
- Distributions: Profits pass through the S-corp directly to you, not considered employee wages or treated as self-employment income.
When you file taxes as an S-corp, you'll need to pay payroll taxes on your salary, similar to any W-2 job. However, you're not required to pay these taxes on distributions from your S-corp. This means that if you categorize more of your income as distributions and less as wages, you can save more money on payroll taxes.
What's “reasonable compensation”?
The IRS requires owner-employees of S-corporations to receive “reasonable compensation” through W-2 wages, which means they must receive a salary. “Reasonable compensation” generally refers to the amount you would need to pay someone to replace your role as a physician and any other responsibilities you have within the business. This amount can be substantial.
The concept of “what is a reasonable compensation” is a heavily debated topic within the S-corp discussion. It can cause problems if you aren't careful. Be sure to consult a tax professional for help determining reasonable compensation.
Other S Corp considerations
Some potential downsides to filing as an S Corp include:
- S-corp filing fees – tax filing preparation often costs more for S Corps than sole proprietorships.
- Loss of qualified business income (QBI) deduction – an S-corp can take away from your QBI deduction because anything you pay in wages doesn't count toward QBI.
- Limit on 401(k) contributions – you can generally only contribute 25% of your wages, which doesn't include distributions.
More resources:
Tax Planning for Physicians: What Are the Benefits of Using S-Corp Tax Strategies?