Sole Proprietor / LLC vs. S Corporation — Tax Savings Comparison
AM Accounting and Tax Services LLC

Sole Proprietor / LLC vs. S Corporation

A side-by-side comparison of self-employment tax versus S corporation payroll tax, so you can see where the savings actually come from — and where they stop.

Your Numbers

Net profit before any S corp salary — i.e., what a sole proprietor would report on Schedule C.
Set as a % of profit here for simplicity — in practice, salary is set by job duties and market comparables, not a percentage. See Chapter 3 of your S Corp Handbook.
Affects the $200,000 / $250,000 threshold for the Additional 0.9% Medicare tax.
Payroll processing, unemployment insurance, added return complexity — typically $1,500–$3,000/yr.
$0
Estimated net annual tax savings from electing S corporation status, after backing out the added cost of running payroll and a more complex return, based on the figures above.

Where the Savings Come From

Sole Proprietor / Single-Member LLC
S Corporation
Sole Prop SE Tax
S Corp Payroll Tax + Costs

Wisconsin Pass-Through Entity (PTE) Tax ElectionS CORP ONLY

Only an S corporation (or partnership) can make this election — a sole proprietorship has no entity level at which to make it. Electing lets Wisconsin tax be paid by the corporation at a flat 7.9% rate on its distributive income, which is then fully deductible on the federal return — sidestepping the $10,000 federal cap on itemized state and local tax deductions that would otherwise apply if that same income were taxed to you personally.

The individual rate this K-1 income would otherwise be taxed at.
Used to value the federal deduction unlocked by the election.
Most homeowning clients already exceed the $10,000 federal cap through property tax alone — leaving no room for this income to be deducted personally.
Without the Election
With the Election (7.9% entity-level)
$0

Quick Reference — Common Profit Levels

Assumes a 50% reasonable-salary ratio and $2,000/yr added S corp cost. Your actual salary requirement may differ — this is illustrative only.

Net ProfitSole Prop SE TaxS Corp Payroll Tax + CostsEst. Net Savings
How this is calculated: Self-employment tax is figured on 92.35% of net profit at 12.4% Social Security (up to the 2026 wage base of $184,500) plus 2.9% Medicare on all net earnings, plus 0.9% Additional Medicare above the filing-status threshold. S corp payroll tax is the combined employee + employer FICA (12.4% Social Security up to the wage base + 2.9% Medicare) on the salary amount only, plus Additional Medicare on wages above the threshold on the employee side. Income tax on total profit is assumed to be roughly comparable between the two structures and is not modeled here — this tool isolates the SE-tax-vs-payroll-tax difference, which is where the real savings occur. It does not account for the employer share of S corp payroll tax being a deductible business expense (a modest secondary benefit not shown), state-level tax differences, retirement plan contribution limits (which can differ by structure), or your specific facts.

Reminder: The IRS requires S corporation shareholder-employees to be paid reasonable compensation for the work they perform before any profit is distributed. The salary figure you choose above must be defensible on those terms, not simply the number that minimizes tax. See Chapter 3 of your S Corporation Handbook, and let's set your actual salary together based on your role, time, and comparable market pay.