It shrinks the base the tax applies to. A sole proprietor pays 15.3% SE tax on ~92% of all profit. An S-corp owner-employee pays the same 15.3% (as combined payroll tax) only on the W-2 salary; the leftover profit is distributed as an owner distribution with no SE/payroll tax. The savings equal 15.3% × (profit − salary), minus the wage-base cap effects and admin costs. Nothing is "written off" — the base just gets smaller.

What the IRS would expect a non-owner employee to earn doing your job in your market. It matters because the whole strategy collapses if the salary is indefensible: the IRS can reclassify distributions as wages and bill you for the payroll tax plus penalties. A $60,000 salary on $120,000 of design profit is defensible; a $15,000 salary on $300,000 of profit is an audit magnet. When in doubt, look at salary surveys for your role and city, and document your reasoning.

Because Congress designed SE tax to mirror FICA. An employee pays 7.65% on wages while the employer pays the other 7.65% — and the employer half is a deductible business expense. To put the self-employed on equal footing, SE tax applies to 92.35% (100% − 7.65%) of net profit, and half the SE tax is deductible above the line. The calculator applies this 92.35% factor automatically, per IRS Schedule SE.

Usually around $50,000–$70,000 of net profit, and the calculator will show your exact point. The math: savings ≈ 15.3% × (profit − salary) − admin costs. At $45,000 profit the savings barely cover a $2,500 payroll-and-filing bill; at $120,000 they cover it four times over. Below breakeven, the entity costs money and time — quarterly payroll filings, a separate corporate return, stricter bookkeeping.

No — only employment taxes. S-corps are pass-through entities: the profit (salary + distribution) is all taxed as your personal income at your marginal rate either way. The election changes which employment tax applies and to what base, not the income tax. Anyone selling an S-corp as an "income tax shelter" is confused or selling something.

It caps the Social Security portion for both structures. The 12.4% OASDI tax applies only up to $184,500 (2026, verified via SSA). Medicare's 2.9% has no cap. At very high profits the sole-prop SE tax stops growing on the Social Security portion too, which compresses the S-corp advantage — as the third worked example shows, the savings at $300,000 profit are not much bigger than at $120,000. The wage base is re-set annually; the calculator's 2026 value was verified 2026-09-25.

Payroll service (~$600–$1,200/yr for one employee), the Form 1120-S corporate return (~$800–$1,500 from a preparer), cleaner bookkeeping, and state fees. Some states add entity-level taxes (California's 1.5% net-income tax with an $800 minimum is the famous one). The default $2,500 is a planning estimate — raise it if your state piles on fees, lower it if you run payroll yourself. Whatever you enter, it is subtracted from the gross tax saving to give the true net.

No — an LLC can elect S-corp taxation with Form 2553. You keep the LLC's legal structure and liability protection; only the tax treatment changes. The election has deadlines (generally within 2 months and 15 days of the tax year start for the current year, with late-election relief available). This is a tax election, not a reincorporation — but the deadlines are real, so plan ahead rather than discovering the option in April.

The calculator does not model it — and it matters. The 20% qualified business income deduction generally applies to S-corp distributions and sole-prop profit alike, but it is limited to 20% of W-2 wages for higher earners, which can make the S-corp salary increase the QBI deduction. At high incomes the interaction can add thousands to the S-corp case. The math is genuinely complex here — another reason the verdict says "talk to a professional" rather than "file the form."

Yes, but not freely. Revoking the S election generally bars re-electing for five years without IRS consent. So the decision should be made on a multi-year view of your profit, not one good quarter. If your income is volatile — $140,000 one year, $40,000 the next — model the lean years too, because the admin costs do not take a year off.

No — federal SE/payroll tax only. States treat S-corps wildly differently: some conform to the federal pass-through, some impose entity-level taxes or minimums (California, New York City, Massachusetts), and some make the election barely worthwhile. Add your state's S-corp costs to the admin-cost input as a rough adjustment, and confirm the details with a local professional before electing.

Economically yes, mechanically it is two halves of one 15.3%. The employee half (7.65%) is withheld from the paycheck; the employer half (7.65%) is paid by the S-corp — which you also own, so it comes out of your pocket either way. The calculator combines them into the 15.3% on salary for exactly this reason: as an owner-employee, you pay both sides, just like a sole proprietor pays both halves of SE tax. There is no double-counting.