S Corporation Tax Savings Calculator - Evergreen Small Business

Okay, an interesting idea.

If you know what your small unincorporated business will generate in profits this year?

And then you have a reasonable idea about what a firm like yours would need to pay someone to do the job you do?

Yeah. Good news. You can use the simple calculator below to estimate of the annual payroll tax savings an S corporation may save you.

Enter the Profits:

Reasonable Salary:

Current Year FICA limit:

Medicare surtax threshold:

Self-Employment Taxes: $0.00

Shareholder Payroll Taxes: $0.00

Tax Savings / Difference: $0.00

More about the S Corporation Tax Savings Calculator

The calculator initially shows placeholder values so you know how the inputs should look, but you want to replace at least two of my example values with your own “real” values.

Specifically, you want to enter your expected business profit for the year—so for example what your Schedule C might show if you’re unincorporated—into the “Enter the Profits” box. You also at a minimum need to specify what a reasonable salary would be if you needed to pay someone to do your job. This value you input into the “Reasonable Salary” box.

You may also want to change the two other inputs. The “Current Year FICA Limit” box shows the 2024 FICA limit. Thus, the calculator assumes you want to calculate the payroll tax savings for 2024. But you replace that value if you want to estimate payroll tax savings for some other year. In 2023, for example, the FICA limit equaled $160,200. So, if you were calculating payroll tax savings from an S corporation for 2023? You would want to change that default value I show to $160,200.

The Medicare surtax threshold, I set to $200,000. That works for a single filer. To model payroll tax savings when someone files a married joint tax return, however, reset the default value to $250,000. To model payroll tax savings when someone who files a married separate tax return, reset the default value to $125,000.

Understanding the S Corporation Tax Savings Calculator’s Results

What the S corporatation tax savings calculator does is simple: It estimates the self-employment taxes you pay if you operate as a sole proprietorship and earn a certain level of profits. Then it estimates how much payroll tax you’ll pay if you instead operate as an S corporation and pay the amount shown as a reasonable salary. Finally, the calculator compares the two amounts to show how much you might save in payroll taxes if you ran the operation as an S corporation.

A note: The payroll tax calculation considers federal unemployment taxes (set arbitrarily to $420), Social Security, Medicare and Medicare surtax taxes. But not state-level payroll taxes. Those state-level taxes will probably eat into your tax savings in most situations. Though often not by too much.

Using the S corporation Tax Savings Calculator for Partnerships

You can use the calculator to estimate the tax savings of partnership reforming as an S corporation. The trick? Treat each partner as a sole proprietor. For example, if one partner earns $100,000 and would need reasonable salary equal to $40,000? You can calculate his S corporation payroll tax savings using the defailt values. If another partner in the partnership earns $200,000 and would need to be paid $100,000 as reasaonable salary? Change the “Enter the Profits” and “Reasonable Salary” inputs to $200,000 and $100,000.

Caveats and Comments

The calculator ignores the hidden costs of you operating as an S corporation–including the new S corporation tax return you’ll pay for, the lost deduction on the reduction in self-employment taxes, and the possible impact of the S corporation on things like your Section 199A deduction and your savings from the pass-through-entity tax. These important bits of the analysis, you want to explore. Probably with the help of your tax advisor.

Further, please consider these values as rough estimates. Thus, if the calculator says you’ll save $6,123 or $8,870 a year, consider the values to be $6,000-ish and $9,000-ish. (If you need more precision to make your decision, you shouldn’t set up an S corporation. You want plenty of extra cushion and savings to pay the minor hassle factor of running your business as an S corporation.)