Total federal tax by structure
On $320,000 of net profit. Payroll tax counts both the employee and employer halves, because an owner-operator bears both whichever side of the ledger they sit on.
Take-home $218K
Take-home $245K
All distributed
An LLC is a state-law liability shell, not a federal tax classification. A single-member LLC that makes no election is a disregarded entity and files Schedule C — its tax bill is the first column, to the dollar. A multi-member LLC defaults to a partnership. Either can file Form 2553 to be taxed as an S corp, or Form 8832 to be taxed as a C corp.
So the question is never “LLC or S corp”. It is “do I want the liability shell” and, separately, “which tax treatment do I elect”. Most profitable small businesses answer yes to the first and S corp to the second, which is why the two get conflated.
| Line | Schedule C | S Corp | C Corp |
|---|---|---|---|
| Net profit | $320,000 | $320,000 | $320,000 |
| Owner W-2 salary | — | $110,000 | $110,000 |
| Employer payroll tax (deductible) | — | $8,415 | $8,415 |
| Pass-through / corporate income | $320,000 | $201,585 | $201,585 |
| QBI deduction | $400 | $40,317 | — |
| Taxable income | $287,776 | $255,168 | $253,152 |
| Corporate tax at 21% | — | — | $42,333 |
| Personal income tax | $69,491 | $58,110 | $15,370 |
| Self-employment tax | $32,308 | — | — |
| Payroll tax, both halves | — | $16,830 | $16,830 |
| Qualified dividend tax | — | — | $23,888 |
| — at 0% / 15% / 20% | — | — | $0 / $159,252 / $0 |
| Net investment income tax | — | — | $2,632 |
| Total federal tax | $101,799 | $74,940 | $101,052 |
| Effective rate on profit + other income | 31.8% | 23.4% | 31.6% |
An S corp election saves $26,859 a year against Schedule C at a $110,000 salary. That is the payroll tax on $210,000 of profit that no longer attracts it.
Against that saving, weigh roughly $1,500–$3,000 a year of payroll service, a separate return, and the cost of getting the salary wrong. An S corp rarely pays for itself below about $50,000 of profit.
Schedule C: $400 — The $400 minimum for 2026 exceeds the computed deduction.
S corp: $40,317 — Above the threshold, but 50% of W-2 wages exceeds 20% of QBI, so the wage test does not bite. Note the owner’s W-2 salary does not itself qualify for QBI, so a higher salary shrinks the deduction while also raising payroll tax. That interaction is why the optimal salary is rarely the lowest defensible one.
At 100% distributed, the C corp pays $42,333 at the entity and $26,519 again on the dividend. Two layers on the same dollar is why it is the wrong answer for most owners who take the money out. Drop the payout slider below 100% to see what happens when earnings stay in the business.
It wins where profits are reinvested rather than distributed, where the owner needs corporate-level fringe benefits, or where qualified small business stock is in play — QSBS can exclude a large share of gain on a future sale and is only available to C corps. None of that is modeled here, and any of it can outweigh the annual tax difference.
State tax is not modeled, and in several states it reverses the answer. California charges a 1.5% franchise tax on S corp income; Tennessee and New Hampshire tax pass-throughs at the entity; New York City does not recognize S corps at all. Also absent: payroll administration cost, fringe benefits, retirement plan differences, accumulated earnings tax, and multi-member partnership allocations. Figures are tax year 2026 per IRS Rev. Proc. 2025-32 and are indexed annually.
Four assumptions inside the QBI and payroll figures that are worth knowing. The wage limitation uses only the 50% of W-2 wages leg — the alternative 25% of wages plus 2.5% of qualified property basis is not modeled, because there is no property input, so a capital-intensive business above the threshold may qualify for more than this shows. The $400 minimum assumes you materially participate under section 469(h), which the tool cannot test. Other household income is treated as wages for the 0.9% Medicare surtax threshold; if it is investment income instead, that threshold should not be reduced and this slightly overstates the surtax. And self-employed health insurance and retirement plan contributions are excluded from both AGI and QBI, which can move the S corp comparison at the margin.