Illinois S-Corp vs LLC Tax Savings Calculator

An S-Corp (Subchapter S Corporation) is a tax election — not a separate legal entity type — that lets a small business owner split income into a W-2 salary and owner distributions. Only the W-2 salary is subject to FICA payroll taxes; distributions are not. Freelancers and sole proprietors whose self-employment profit reliably exceeds roughly $40,000–$50,000 per year are the most likely candidates, because the payroll-tax savings on distributions can outweigh the added administrative costs.

The savings come entirely from the payroll-tax difference. As an LLC or sole proprietor, you pay 15.3% self-employment tax (SE tax) on 92.35% of your entire net profit. With an S-Corp, FICA applies only to your reasonable W-2 salary — typically 40–60% of net income. Distributions above the salary escape FICA entirely. At $80,000 net income with a 40% salary, the SE-tax saving is roughly $3,000–$4,000 per year before accounting for state entity fees.

The IRS requires S-Corp owner-employees to pay themselves a reasonable salary — meaning compensation comparable to what you would pay an unrelated employee doing the same work. The IRS has challenged S-Corps that paid token salaries to avoid FICA. Most tax professionals recommend 40–60% of net income as a starting benchmark, but the right figure depends on your industry and role. This calculator defaults to 40% as a conservative starting point.

Beyond the state entity fees shown in this calculator, an S-Corp requires: a separate payroll system (withhold employee FICA, remit employer FICA, file quarterly 941s), an annual corporate tax return (Form 1120-S), and often a separate business bank account. Typical accounting and payroll service costs run $1,500–$3,000 per year. This calculator does not model those administrative costs — factor them in before electing S-Corp status.

California taxes S-Corps at the greater of $800 (the minimum franchise tax) or 1.5% of net income. At $80,000 net income, that is $1,200 — versus just the $800 LLC annual fee. The extra $400 state cost partly offsets the federal FICA savings. The calculator shows you the net position for California specifically. For very high incomes, the federal payroll-tax savings dominate; for lower incomes, the state costs can make the S-Corp election a wash or slightly negative.

Yes. A single-member or multi-member LLC can elect S-Corp status by filing Form 2553 with the IRS. The LLC structure remains in place for state law purposes; only the federal tax treatment changes. Most states recognize the federal S-Corp election automatically, though a few require a separate state-level election. Consult a tax professional before making the election — timing matters (generally within 2 months and 15 days of the start of the tax year you want it to apply).

Section 179 flows through to the S-Corp shareholders on Schedule K-1 and is deductible at the individual level, subject to the shareholder's basis and at-risk limitations. The deduction itself is the same dollar amount regardless of entity type, but the mechanics differ slightly from a sole proprietorship. This calculator does not model Section 179 — see the Section 179 Vehicle Deduction Calculator for that.