S-Corp vs sole proprietor: which is cheaper in 2026?

It depends on profit. At $80,000 net profit with a 60% salary, the S-Corp saves roughly $12,700 gross on SE tax ($11,304 vs $7,648 FICA) minus $2,000-4,000 a year in compliance (payroll, Form 1120-S, bookkeeping) — about $1,250 net. Below ~$60K profit the compliance costs usually eat the savings. Above ~$100K the S-Corp is almost always better.

How much does an S-Corp cost to run in 2026?

$500-1,500 a year for payroll service, $800-2,000 for Form 1120-S preparation, plus bookkeeping — typically $2,000-4,000 total. In California add the $800 minimum franchise tax (1.5% of net income above that, Rev & Tax §17941/§23153). NYC freelancers also avoid the 4% Unincorporated Business Tax above $95,000 gross with an S-Corp election.

What is a reasonable salary for an S-Corp owner in 2026?

What you would pay someone else to do the same work — typically 50-70% of net profit for full-time owner-operators. The IRS scrutinizes low salaries: paying yourself too little to avoid payroll tax triggers audit, wage reclassification and penalties (Sec. 3121). This calculator defaults to 60% and lets you adjust.

Does the QBI deduction apply to S-Corp distributions?

Yes — Section 199A (made permanent by OBBBA in July 2025) applies to pass-through distributions but NOT to W-2 salary. The deduction is capped by the wage limit: 50% of W-2 wages paid. So salary paid to the owner reduces QBI availability, which narrows but rarely eliminates the S-Corp advantage.

When does an S-Corp stop making sense?

Below roughly $50-60K of net profit, when the SE-tax savings no longer cover $2-4K of compliance, or when you never take distributions (all profit paid as salary). Side income under $10K, part-time businesses and low-profit years are usually better as sole proprietorships. The breakeven depends on your salary %, state tax and actual compliance costs.

S-Corp vs Sole Proprietor Calculator 2026

Compare your take-home pay as a sole proprietor vs an S-Corp — SE tax vs payroll taxes, reasonable salary, QBI and California franchise tax included.

Annual net profit (Schedule C, $)

S-Corp owner salary (annual, $)

Leave 0 to use the default reasonable salary (60% of net profit).

State of residence

How much does an S-Corp save in 2026?

At $120,000 of net profit with a $70,000 reasonable salary, the S-Corp pays about $10,710 in employment taxes versus $16,955 of self-employment tax as a sole proprietor — a gross saving of roughly $6,245 a year. On $80,000 the saving is about $3,656, which stays positive after $2,000-4,000 of compliance. The break-even is around $60-80K of profit: below that, payroll and filing costs eat the benefit.

What is a reasonable S-Corp salary in 2026?

The IRS expects what you would pay someone else to do the same job — typically 50-70% of net profit for a full-time owner-operator. Paying yourself a token salary to dodge payroll tax is the top S-Corp audit trigger: the IRS can reclassify distributions as wages and add penalties plus interest. This calculator defaults to 60% and re-runs the numbers if you adjust it.

What does an S-Corp cost to run?

Budget $2,000-4,000 a year: payroll service $500-1,500, Form 1120-S preparation $800-2,000, plus bookkeeping. California adds the $800 minimum franchise tax (1.5% of net income when higher — at $150K profit that is $2,250 on Form 100S, due March 15). In NYC an S-Corp election also sidesteps the 4% Unincorporated Business Tax that hits sole proprietors above $95,000 of gross income.

Does the QBI deduction work for an S-Corp?

Yes — Section 199A (permanent since OBBBA, July 2025) covers pass-through distributions but not W-2 salary. The deduction is limited by the wage limit: 50% of W-2 wages paid. A $60,000 salary caps the qualifying distributions at $30,000, so the deduction is at most $6,000. Paying yourself salary narrows the QBI benefit but rarely eliminates the S-Corp advantage.

What is the California S-Corp franchise tax?

The greater of 1.5% of California-source net income or the $800 minimum (Rev & Tax §17941), filed on Form 100S by March 15. The $800 floor is waived only in the first year for new corporations. At $150,000 of profit the franchise tax is $2,250 — it reduces but does not eliminate the S-Corp advantage versus the sole-proprietor SE tax.

When should you NOT form an S-Corp?

Below roughly $50-60K of net profit the compliance costs swallow the SE-tax savings. If you take all profit as salary there is no benefit at all. Side income, part-time businesses and loss years are usually better as a sole proprietorship. And note: a single-member LLC does NOT avoid SE tax by itself — the S-Corp election is what moves employment taxes off distributions.

Disclaimer

Indicative estimate based on the rules in force on the verification date. This is not tax advice: always confirm with the tax authority, social security office or your accountant, because your own case may involve allowances, deductions or deadlines.

Data verified on: 21.10.2026

How to BECOME

Register with the social security authority for your country and apply for the reduced starter rate if you qualify. The contribution base can be changed 6 times a year.

How to become self-employed

How to become self-employed: step by step

Six steps with the real deadlines and the official links. Order matters: the registration date is what opens the window for the reduced rate and the VAT threshold.

Two questions decide your structure before you invoice anyone. First, IR35: if your client ends the contract and pays a substitute worker, the client checks your status. If your own limited company is between you and the client, that client is outside IR35 — but clients do check. Second, VAT: you must register if your turnover exceeds £90,000 in any 12 months (from 1 April 2025) — the registration threshold is not a tax allowance.
gov.uk — VAT registration threshold →
A sole trader is the simplest and cheapest to set up, and usually best below ~£50-60k profit. A limited company (Ltd) costs ~£50-500 to incorporate plus £0-820/year in accounts and confirmation statements, but moves employment tax off distributions above ~£80k profit. An umbrella company is just a payroll intermediary for contractors inside IR35 — it is not your own company.
gov.uk — set up a limited company →
You must register for Self Assessment by 5 October in the second year after the tax year you started trading (31 October for a limited company). You get a Unique Taxpayer Reference (UTR) within 2 weeks. You then file a Self Assessment tax return each year, normally by 31 January, with a balancing payment by 31 July.
gov.uk — register for Self Assessment →
As a sole trader you pay Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% above — no cap. Class 2 is voluntary at £3.45/week if your profits are below £7,105 (this preserves your state pension and maternity rights). If you are an employee as well, your Class 4 is reduced by your Class 1 contributions.
gov.uk — self-employed National Insurance →
For sole traders you can use the simplified mileage allowance of 55p per mile for the first 10,000 business miles and 25p after (from 6 April 2026) instead of itemising fuel, insurance, repairs, tax and depreciation. You cannot mix methods for the same vehicle in the same year. For a company car, use the Advisory Fuel Rates to work out the benefit charge instead.
gov.uk — allowable business expenses →
HMRC expects tax to be paid in instalments via the Making Tax Digital quarterly updates (payments on account), and charges interest and penalties if you pay late. Separately, a 1099 or SEIS-free freelance contract pays nothing between contracts: budget 20-30% of your rate for unpaid time, pension, holiday and sick pay that employees get for free.
gov.uk — pay your Self Assessment tax →

Share this calculation

The link keeps your inputs: anyone opening it sees exactly the same numbers. Save the calculations you repeat to keep them at hand.

/en/s-corp-vs-sole-proprietor?gewinnMonat=5000&mitKind=1&zusatzbeitrag=0.029&umsatzVorjahr=24000&umsatzLaufendesJahr=50000&gewerblich=0&hebesatz=4&umlagesatzIhk=0.002&umsatzJahr=50000&ausgabenJahr=20000&b2bAnteil=1&preisanpassung=0&angestellterVgl=0&agZuschlag=0&rendimiento=1500&tarifaPlana=1&nuevoAutonomo=0&rentaAnual=25000&region=andalucia&tarifaPlanaSim=1&ciudad=madrid&ingresosAnuales=24000&gastosAnuales=6000&retencionesAnuales=3600&caMensuel=3000&activite=bic_services&versementLiberatoire=1&fraisGestion=7&cfeN2=40000&cfeAnnee=3&cfeVille=paris&simulerAcre=0&acreCA=36000&acreActivite=bnc&base=1000&ivaTipo=0.21&dayRate=500&billableDays=200&ir35Compare=0&holidayPay=1&profissao=fullstack&experiencia=senior&tipoAtividade=1519&anoJovem=1&cifra=500000&dividendos=10000&mode=net_to_tjm&netMensuel=4500&jours=185&profession=fullstack&ville=paris&experience=confirme&ingresos=10000&gastos=4000&fuel=petrol&miles=10000&privateMiles=0&evCharging=home&engineCC=1800&brutoMensal=2000&rendimentoAnual=24000&netIncome=80000&situacaoFamiliar=solteiro_sem_dependentes&dependentes=0&anoBeneficioSal=0&bens=0&anoBeneficio=0&regiao=continente&clienteParticular=0&simulerCfe=1&distance=12000&cv=5cv&vehicule=voiture&electrique=0&salaire=30000&fraisReels=4500&bruto=2000&pagas=14&hijos=0&tipo=turismo&uso=mixto&precio=25000&anioCompra=2026&combustible=1800&seguro=600&reparaciones=400&itv=50&parking=300&otros=0&renting=0&renta=30000&kmAnual=15000&employerRate=0&marginalRate=20&passengerMiles=0&income=50000&employed=1&salary=0&workingDays=220&bonusPct=10&upliftPct=30&state=Texas&priorYearTax=0&priorYearAgi=0&w2Withholding=0&milesH1=6000&milesH2=6000&milesMedical=0&rateSel=22&billableHours=1000&netTarget=60000&hourlyRate=80&businessExpenses=10000&w2Salary=80000&w2Wages=0&qualifiedProperty=0&km=40&tage=220&oepnv=0&grenzsteuer=30&zve=0&zusammen=0&currency=EUR

S-Corp vs Sole Proprietor Calculator 2026

How much does an S-Corp save in 2026?

What is a reasonable S-Corp salary in 2026?

What does an S-Corp cost to run?

Does the QBI deduction work for an S-Corp?

What is the California S-Corp franchise tax?

When should you NOT form an S-Corp?

Disclaimer

How to BECOME

How to become self-employed: step by step

11. Check your VAT and IR35 status first−

22. Decide: sole trader, limited company or umbrella+

33. Register with HMRC for Self Assessment+

44. Get National Insurance right+

55. Claim your allowable expenses properly+

66. Put money aside for tax and for the gaps+

Share this calculation