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If you're self-employed with growing profit, electing S-corp status can lower your self-employment tax — but it isn't free, and it isn't always worth it. Adjust the numbers below to see where you stand.
The IRS requires S-corp owners to pay themselves a "reasonable salary" for their role before taking the rest as a distribution. There's no fixed formula — this is a planning estimate, and your actual reasonable-salary figure depends on your industry and role.
As Sole Proprietor
$12,717
self-employment tax
As S-Corp
$8,235
payroll tax + CA entity tax
Estimated Annual Savings
$2,482 – $3,682
This is an educational estimate, not tax advice. It covers self-employment and payroll tax only — it does not account for your income tax bracket, the Qualified Business Income deduction, retirement contributions, or the specific facts of your business. Reasonable compensation requirements are fact-specific and determined case by case. Consult with a tax professional before making an entity election.