LLC vs Sole Proprietor Tax Calculator

How it is calculated

This is a US-style comparison with one flat income tax rate. Sole proprietor: self-employment tax is charged on 92.35% of net profit, at 12.4% Social Security (only up to a wage base of 176,100 built into the tool) plus 2.9% Medicare on the whole base. Half of that tax is deducted before income tax is applied at your rate. LLC taxed as an S-corp: the same 15.3% payroll tax applies only to the salary you enter, and half of it is deducted before income tax on the profit. The remaining profit pays income tax but no payroll tax. Both totals are shown with their effective rates, and "savings" is sole total minus LLC total. Salary cannot exceed profit; profit must be positive. State taxes, extra Medicare tax, business deductions and filing costs are not included, and other countries have different rules.

Common mistakes

• Entering a very low salary such as 0 to maximise the saving: the tool allows it and shows $0.00 payroll tax, but a salary must be reasonable for the work done, so the saving is not realistic.
• Entering revenue instead of net profit: the sole-proprietor tax is computed on profit after expenses, so revenue gives much too large a tax bill.
• Typing the income tax rate as a fraction (0.22): the tool reads it as 0.22%, which drops the income tax almost to zero in both columns.
• Reading the savings as the full benefit of an LLC: the tool ignores the cost of running payroll, extra filings, state taxes and the deductions available to each structure.
• Entering a salary above the profit: the tool returns no result, because an S-corp cannot pay a salary larger than its profit.