FAQ
How much can I save converting to an S corp?
There is no reliable rule that every owner saves a fixed percentage, and there is no universal profit level at which an S corporation automatically wins. The useful answer comes from comparing the same profit, filing status, other wages, state, business type, reasonable-compensation evidence, QBI limits, and recurring costs under both structures. For a fuller walkthrough of those moving parts, read our 2026 S corporation versus sole proprietor comparison.
A sole proprietor generally calculates self-employment tax on 92.35 percent of net earnings. The 12.4 percent Social Security portion is limited by the 2026 wage base of $184,500, while the 2.9 percent Medicare portion has no wage cap. An S corporation pays employment tax on reasonable W-2 wages. Qualified pass-through income may avoid employment tax, but it remains subject to income tax and the Section 199A rules.
Three 2026 screening examples
These illustrations use a single filer in Texas, no other wages, an other-service-business industry setting, active participation, no non-owner W-2 wages, no qualified-property basis, and $1,500 of annual payroll and Form 1120-S administration cost. The salary is a screening assumption generated by the public model. It is not an IRS-approved reasonable-compensation conclusion.
$75,000 of annual net profit
The model assigns $35,000 of screening W-2 salary and $40,000 of remaining profit before other corporate adjustments. The estimated annual difference after the $1,500 administration cost is $3,037 in favor of the S corporation under these assumptions.
$120,000 of annual net profit
The model assigns $42,000 of screening W-2 salary and $78,000 of remaining profit before other corporate adjustments. The estimated annual difference after the $1,500 administration cost is $6,963 in favor of the S corporation under these assumptions.
$250,000 of annual net profit
The model assigns $87,500 of screening W-2 salary and $162,500 of remaining profit before other corporate adjustments. The estimated annual difference after the $1,500 administration cost is $11,824 in favor of the S corporation under these assumptions.
These are illustrations, not promises. A different salary, state, filing status, spouse income, retirement contribution, health-insurance deduction, employee payroll, qualified property, FUTA, SUTA, or capital-gain profile can change the result and can reverse which structure appears better.
What changes at higher income?
Section 199A can allow a deduction of up to 20 percent of qualified business income, but the result is not simply 20 percent of cash distributions. Reasonable compensation is excluded from S corporation QBI. Above the 2026 taxable-income thresholds, W-2 wage, qualified-property, and specified-service-business limitations can reduce the deduction. The calculator applies those limits using the facts it receives and assumes zero non-owner wages and zero qualified-property basis unless a personalized analysis supplies them.
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