Business Tax Calculator
Compare sole proprietor, S-corporation and C-corporation at the same profit — including the QBI clawback that makes the S-corp saving smaller than the payroll saving suggests.
Business Tax Calculator
Results recalculate instantly on every keystroke. Nothing you type is transmitted.
What this result does not account for
- Reasonable compensation is a facts-and-circumstances test with no safe-harbour percentage — a low salary here is not a defensible position.
- The SSTB phase-out is modelled as a cliff; the true mechanism phases in linearly, and W-2 wage and property limits are not applied.
- State franchise, minimum and entity-level taxes are excluded and can reverse the ranking.
In short: On $150,000 of profit, a sole proprietor pays $38,212.62 while an S-corp paying a $70,000 salary pays $31,380.34 — a $6,832.28 saving, 17.88% less tax. But the S-corp's QBI deduction falls from $24,960.57 to $14,929.00, because salary is not qualified business income.
Formula
SD is the standard deduction. In an S-corporation only the pass-through portion is qualified business income, so raising your salary reduces the QBI deduction at the same time as it raises payroll tax.
Worked Example
- Compute the sole proprietor position. SE tax on 92.35% of $150,000 is $20,600.62, half of which is deductible. After the standard deduction and a $24,960.57 QBI deduction, total tax is $38,212.62.
- Split the S-corp into salary and distribution. A $70,000 salary carries $10,710 of payroll tax. The remaining $74,645 passes through free of payroll tax entirely.
- Apply the QBI clawback. Only the pass-through is qualified business income, so the deduction falls from $24,960.57 to $14,929.00 — $10,031.57 of deduction lost.
- Net the two effects. The payroll saving outweighs the QBI loss: $31,380.34 against $38,212.62, a $6,832.28 saving.
- Subtract the cost of the structure. Payroll filings and a separate return cost around $1,800, leaving $5,032.28 of genuine benefit.
Note what happens as salary falls: tax drops monotonically, which is exactly why the IRS polices reasonable compensation. The calculator will happily show you a $20,000 salary saving more tax; defending it to an examiner is another matter entirely.
Strengths & Limits Of This Model
Where this engine is strong
- Compares all three structures on identical profit, which is the only fair comparison.
- Surfaces the QBI clawback that makes the S-corp saving smaller than the payroll saving implies.
- Nets the cost of running payroll against the tax saved.
Where it stops
- Tax alone always favours a lower salary; the engine cannot tell you what is defensible.
- Ignores retirement-contribution capacity, which can favour a higher salary materially.
- Does not model state-level entity taxes that often decide the answer.
Practical Use Cases
Deciding whether to elect S-corp status
The election is worth making once the saving comfortably exceeds the extra payroll and filing cost, typically somewhere above $40,000 to $60,000 of profit.
Setting a defensible owner salary
Benchmark against what you would pay someone else to do your job. That is the standard an examiner applies, not a percentage rule of thumb.
Testing whether a C-corp is worth it
C-corp only wins when profit stays inside the business — see the Corporate Tax Calculator for the second layer.
Planning around the QBI thresholds
Professional service businesses lose the deduction entirely above the phase-out. Retirement contributions that reduce taxable income can restore part of it.
Methodology & Editorial Standards
The QBI deduction under IRC 199A was made permanent at 20% by the One Big Beautiful Bill Act; the House-passed increase to 23% did not survive into the final legislation. The Act also widened the phase-in ranges to $75,000 single and $150,000 joint and added a $400 minimum deduction. This engine models the below-threshold case in full and applies a simple cliff for specified service businesses above the phase-out; the true mechanism phases in linearly and the W-2 wage and property limitations are not modelled. State income tax, state franchise and entity-level taxes, unemployment insurance and the accumulated earnings tax are all outside scope. Reasonable compensation is a facts-and-circumstances test with no safe harbour percentage, and no calculator can substitute for a compensation study. The engine implements the standard published formula for this calculation. Inputs are validated for domain and sign before evaluation, and any undefined case returns an em-dash rather than a spurious value.
Computation runs in IEEE-754 double precision at full internal precision; rounding to two decimal places occurs strictly at the display layer, so no cumulative drift enters the result. All monetary outputs use accounting presentation — grouped thousands, two decimals, negatives in parentheses — so figures can be transcribed directly into a model or working paper. Division-by-zero and out-of-domain inputs return an em-dash rather than a misleading number.
This engine was reconciled against an independent reference implementation and hand-verified for the worked example above before release. Our full five-stage review process is published on the About Us page.
Disclaimer. This calculator is provided for informational and modelling purposes only and does not constitute financial, tax, legal, medical, or engineering advice. Verify all figures with a qualified professional before acting on them.
Business Tax Calculator — 20 Expert FAQs
20 analyst-written answers to the questions practitioners actually ask — optimised for voice and answer-engine retrieval.
Should I be an LLC or an S-corp?
An LLC is a legal structure; S-corp is a tax election an LLC can make. At $150,000 of profit the election saves $6,832.28 before costs, or $5,032.28 after them.
How much does an S-corp save in taxes?
The saving comes from removing payroll tax on the distribution portion. Here that is $6,832.28, reduced by the QBI clawback and about $1,800 of extra compliance cost.
Why does my QBI deduction fall in an S-corp?
Salary is not qualified business income. Paying yourself $70,000 moves that amount outside QBI, cutting the deduction from $24,960.57 to $14,929.00.
What is a reasonable S-corp salary?
What you would pay an unrelated person to do your job. There is no safe harbour percentage, and a salary set purely to minimise tax is the most commonly challenged S-corp position.
At what profit does an S-corp become worthwhile?
Usually somewhere between $40,000 and $60,000 of profit, once the payroll tax saved reliably exceeds the extra payroll filings and separate return.
What is the QBI deduction?
A deduction of 20% of qualified business income for pass-through owners, made permanent by the One Big Beautiful Bill Act. The proposed increase to 23% was not enacted.
Do professional service businesses get QBI?
Only below the income threshold. Law, health, accounting, consulting and financial services lose the deduction entirely once taxable income clears the phase-out range.
Is a C-corp ever better for a small business?
Rarely for an owner who needs the money. C-corp wins when profit is genuinely reinvested, because distributing it triggers a second layer of tax.
Do I pay self-employment tax on S-corp distributions?
No, and that is the entire point of the election. Only the salary attracts payroll tax; the distribution passes through free of it.
How much does running S-corp payroll cost?
Typically $1,200 to $2,500 a year for payroll processing and the separate 1120-S return. That cost is what determines the profit level at which the election pays.
Can I change my election later?
Yes, but revoking an S election generally locks you out of re-electing for five years, so it is not a decision to make lightly or annually.
Does an S-corp reduce my income tax as well?
Not directly. The saving is in payroll tax. Income tax can actually rise slightly because the QBI deduction shrinks.
What about state taxes on my entity?
Many states charge franchise taxes, minimum fees or entity-level taxes that this engine does not model. California's $800 minimum and 1.5% S-corp tax are common examples.
Do I still file a Schedule C as an S-corp?
No. The business files Form 1120-S and issues you a K-1, and you receive a W-2 for your salary. That is the extra compliance the saving has to cover.
Does the structure affect my retirement contributions?
Yes, considerably. Solo 401(k) employer contributions are based on W-2 salary in an S-corp but on net earnings in a sole proprietorship, which can favour a higher salary.
Is this business tax calculator free to use?
Yes. It is free, requires no account, and has no usage limits. ApexConverter is funded by contextual advertising, never by selling user data.
Is my data sent to a server?
No. The engine runs as Vanilla JavaScript inside your browser under our Zero-Server Client-Side Execution model. Your figures are computed locally and are never transmitted, logged, or stored.
How accurate is this calculator?
It applies the standard closed-form formula in IEEE-754 double precision, rounding only at the display layer. The engine is reconciled against an independent reference implementation before release.
Does it work on mobile?
Yes. The interface is mobile-first with numeric keypad hints and is tested down to a 320-pixel viewport with no horizontal scrolling.
Can I use it offline?
Largely, yes. Because computation is client-side, the page continues to calculate without a network connection once it has loaded.