What salary should I pay myself?

Enough to be reasonable for your role — roughly what you'd pay an employee to do your job. A salary near half of profit is a common starting point, adjusted to market pay.

How much does an S-Corp cost per year?

Plan on $1,200–$2,500 for payroll and a separate 1120-S return, plus any state franchise tax or fee.

S-Corp

Is an S-Corp worth it in 2026?

Updated June 2026·2 min read·Checked against IRS Rev. Proc. 2025-32

An S-Corp election can cut your self-employment tax by splitting profit into a salary and distributions — but it isn't free, and below a certain income the cost outweighs the saving. Here's the break-even math, in plain terms.

Key takeaways

✓An S-Corp saves 15.3% on the profit you take as distributions instead of salary.
✓It usually pays off past ~$60k–$80k of net profit.
✓Budget $1,200–$2,500/yr for payroll plus a separate 1120-S return.

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How an S-Corp lowers your tax

A sole proprietor pays 15.3% self-employment tax on essentially all profit. An S-Corp splits that profit into a W-2 salary (which still owes FICA) and distributions (which don't owe self-employment or FICA tax). Your saving is 15.3% on the distribution portion. Income tax, the standard deduction, and the QBI deduction work out about the same either way — which is why the decision comes down to payroll tax.

The catch: a reasonable salary

The IRS requires your salary to be reasonable for the work you do — you can't pay yourself $0 and take everything as distributions. Too low a salary is the single most common audit trigger. Many owners start near half of profit and adjust to local market pay for their role.

The real annual cost

An S-Corp has to run formal payroll (withholding, quarterly 941s, W-2s) and file its own 1120-S return separate from your 1040 — realistically $1,200–$2,500 a year, plus any state S-Corp franchise tax or fee. That cost is fixed whether you save $2,000 or $12,000, which is why income level decides it.

Where the break-even is

The saving has to clear that yearly cost to be worth the hassle. For most people that happens somewhere around $60,000–$80,000 of net profit and grows from there. Below it, staying a sole proprietor is simpler and cheaper. The calculator shows your exact gross saving and nets out the cost so you can see which side of the line you're on.

How and when to elect

You elect S-Corp treatment by filing IRS Form 2553, generally by March 15 to apply to that tax year. Many owners form an LLC first and elect S-Corp on top of it. Because it's an annual commitment with real admin, run the numbers before filing and revisit them each year — the saving scales with profit.

Frequently asked questions

There's no hard line, but the saving commonly clears the ~$1,200–$2,500 yearly cost around $60,000–$80,000 of net profit. Use the calculator to find your own break-even.

S-Corp vs sole proprietor calculator →Self-employment tax calculator →How much to set aside →

A planning estimate, not tax advice. Figures use IRS Rev. Proc. 2025-32 (2026). Confirm decisions with real money on the line with a CPA or enrolled agent.