Sole Proprietor / LLC vs. S-Corp Tax Comparison (USA)
Understanding the tax differences between operating as a Sole Proprietor (or LLC taxed as a Sole Prop) and an S-Corporation is crucial for small business owners in the U.S. Key differences include how income is taxed, particularly regarding Self-Employment (SE) taxes vs. Payroll (FICA) taxes.
- Sole Prop / LLC (Taxed as SP): Net business income is generally subject to both income tax and SE tax. Owner draws are not salary.
- S-Corporation: Owner working for the business must be paid a reasonable W-2 salary subject to payroll taxes. Remaining net income is typically passed through and generally *only* subject to income tax (avoiding SE tax on that portion).
* Uses estimated 2025 federal Social Security (12.4% total) and Medicare (2.9% total) tax rates, and the 2024 Social Security wage base ($168,600). Uses user-provided estimated marginal income tax rate. Actual tax liability depends on many factors.
Enter Your Business and Tax Information
* For S-Corps, owner's salary must be "reasonable" and is subject to payroll tax. Salary cannot exceed Net Income Before Salary (Gross Income - Total Expenses).
* Use your estimated marginal federal income tax rate (the rate on your last dollar earned).
Sole Proprietor / LLC vs. S-Corp Tax Comparison Results
Estimated federal tax impact comparison based on your inputs for a hypothetical business scenario.
* Uses estimated 2025 SS/Medicare rates and 2024 SS wage base ($168,600). Uses user-provided estimated marginal income tax rate. Actual tax liability varies based on many factors.
** S-Corp owner salary must be reasonable and is subject to payroll tax. Remaining profit is generally not subject to SE tax.
Estimated Tax Comparison:
| Tax Item | Sole Proprietor / LLC (Taxed as SP) | S-Corporation |
|---|
Tax Difference (S-Corp Total Tax vs. Sole Prop/LLC Total Tax): $0.00 ()