How much tax can an S-corp save on self-employment?

A sole proprietor with $200K net income pays $14,130 SE tax on the full amount. An S-corp owner paying $80K salary and $120K distribution saves FICA on the $120K distribution — roughly $9,180 in FICA savings, minus S-corp formation and administration costs.

What is a reasonable salary for S-corp purposes?

What a similar role would pay in the market. The IRS scrutinizes very low salaries relative to profits. Industry median compensation for the services performed is the safest benchmark.

When does forming an S-corp NOT make sense?

For net profits under $40,000–$50,000, the administrative cost of S-corp election (payroll, bookkeeping, separate tax return) typically exceeds the FICA savings. Rule of thumb: S-corp saves money above $50,000 annual net profit.

S-Corp Salary vs Distribution Tax Savings Calculator

Calculate FICA/SE tax savings from paying a reasonable salary and taking remaining S-corp profit as a distribution. Shows the optimal salary split and annual tax savings.

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Frequently Asked Questions

How much tax can an S-corp save on self-employment?

What is a reasonable salary for S-corp purposes?

When does forming an S-corp NOT make sense?