Find Out How Much You're Overpaying the IRS.

Are you paying self-employment tax on every dollar you make?

If you're a sole proprietor or a regular LLC, you are. Self-employment tax is the Social Security and Medicare tax you pay on your own earnings. It runs 15.3%, and it starts on your first dollar of profit.

An S corp changes how that profit gets taxed. An S corp is a tax status, not a new business. Your LLC can elect it with a form called Form 2553.

Once you're an S corp, your profit splits into two buckets.

The Paycheck Bucket. You pay yourself a salary through payroll. Social Security and Medicare still apply to every dollar here, the same 15.3% split between you and the company.

The Distribution Bucket. Whatever profit is left after your salary comes to you as a distribution. Distributions don't carry Social Security or Medicare tax. That's where the savings come from.

So why not pay yourself a tiny salary and put everything in the second bucket? Because the IRS won't let you. Your salary has to be reasonable for the work you do. If you run the crew, bid the jobs, and do the work, your salary has to look like what you'd pay someone else to do that. Set it too low and the IRS can reclassify your distributions as wages, with back taxes and penalties.

What the calculator estimates. It starts with your profit and sets your salary at half of it. You can change that number. Then it compares the self-employment tax you pay now with the payroll tax you'd pay as an S corp. The gap is your estimated savings. Already an S corp? It checks the salary you pay yourself against a benchmark range instead.

What it leaves out. An S corp isn't free. It adds costs the estimate doesn't subtract:

• A payroll service to run your salary (we don't run payroll, so you'd use a provider for this)
• A separate business tax return every year (Form 1120-S). See S corp return pricing
• California's 1.5% tax on S corp profit, with an $800 minimum every year
• More bookkeeping, because the business and you now file separately

Below a certain profit, those costs eat the savings. Above it, the savings grow every year. Where that line sits depends on your numbers, which is what the calculator is for.

Key Takeaway: An S corp saves you money by moving part of your profit out of self-employment tax. The salary rule and the extra costs decide whether it's worth it for you.

At Civita Tax Solutions, we help home service business owners save money on taxes with all-in-one accounting. We handle your bookkeeping, advisory, and tax filing. You focus on the business. We handle the finances.

Want a real answer instead of an estimate? We'll run your actual numbers before you spend a dime on an election.