| Profit | $59,376.71 |
| Self-employment tax 15.3% on 92.35%, SS capped | $8,389.66 |
| §199A deduction | −$7,816.38 |
| Taxable income after the $16,100.00 single deduction | $31,265.51 |
| Federal income tax | $3,503.86 |
| Total tax | $11,893.52 |
What if you were an S-corp?The same profit taxed two ways: as you are structured now, and as an S-corp paying a salary with the balance as distribution. A comparison to take to a CPA, not the election itself.
Tax year 2026.
You'd pay about
$258.85 / year
more as an S-corp at this salary and overhead, so the election doesn't pay yet.
Projected profit
$59,376.71
| Salary (W-2) | $40,000.00 |
| Payroll taxes on the salary both halves: SS $4,960.00 · Medicare $1,160.00 · FUTA | $6,162.00 |
| S-corp overhead payroll service, state fees, the 1120-S | $2,000.00 |
| Distribution (K-1 ordinary income) profit − salary − employer payroll tax − overhead | +$14,274.71 |
| §199A deduction on the K-1 share; the salary counts as W-2 wages for the cap | −$2,854.94 |
| Taxable income salary + K-1 − deduction − §199A | $35,319.77 |
| Federal income tax | $3,990.37 |
| Total tax + overhead | $12,152.37 |
The lower the salary, the bigger the saving, and the more "reasonable compensation" gets argued. The IRS expects roughly what you'd pay someone else to do your job; CPAs often start between 40% and 60% of profit. A benchmark service (RCReports and the like) is the defensible source for the figure.
| Salary | Sole-prop tax | S-corp tax + overhead | You'd keep |
|---|---|---|---|
| $18,000.00 (30% of profit) | $11,893.52 | $8,419.94 | +$3,473.58 |
| $24,000.00 (40% of profit) | $11,893.52 | $9,437.88 | +$2,455.65 |
| $30,000.00 (50% of profit) | $11,893.52 | $10,455.81 | +$1,437.71 |
| $36,000.00 (60% of profit) | $11,893.52 | $11,473.75 | +$419.77 |
| $42,000.00 (70% of profit) | $11,893.52 | $12,491.68 | -$598.16 |
What this does and doesn't count
- Counted: self-employment tax vs payroll taxes on the salary (both halves, Social Security capped at the wage base, the 0.9% Additional Medicare), the S-corp's overhead, the standard deduction and other income from your tax profile, the §199A deduction on both sides (an S-corp's salary counts as W-2 wages for the cap, which can matter above the threshold), federal brackets for your filing status, and a flat state rate.
- Not counted: state S-corp taxes and minimum franchise fees (California's $800 + 1.5%, New York City's tax on S-corps, Tennessee's excise), the payroll chore itself (941s, W-2s, state unemployment) beyond the overhead line, retirement-plan interactions (an S-corp's employer 401(k) match is limited by salary), health-insurance treatment for a >2% shareholder, and the reasonable-compensation judgement the IRS can second-guess.
- Profit is the projection from your books through 2026-09-27; the estimator's own projection is where it comes from.