How Much Does an S-Corp Actually Save? (The Honest Math)
The pitch you've heard is real but incomplete: an S-corp lets business profit above your salary skip the 15.3% self-employment tax. At $120,000 of profit with a $65,000 reasonable salary, that's roughly five figures of annual savings. At $40,000 of profit, it's roughly nothing — because payroll costs and the salary requirement eat the benefit.
The variable that decides everything is 'reasonable salary': the IRS requires S-corp owners to pay themselves what their work is worth before taking tax-advantaged distributions. Lowball salaries are the classic audit trigger; honest ones still leave real savings at healthy profit levels.
The break-even zone
Rules of thumb from the math (run your own numbers in our free calculator): below ~$50,000 of profit, payroll admin and the salary floor usually erase the benefit. Between $60,000 and $80,000 it starts to pay. Above $100,000 it's typically thousands per year — which is why your CPA brings it up at exactly that point.
What the calculator deliberately ignores — income-tax interactions, QBI, state taxes like California's 1.5% S-corp franchise levy — can move the answer. The calculator sizes the conversation; your CPA finishes it.
Decided? The paperwork is the easy part to get wrong
The election itself is Form 2553: a hard deadline (2 months and 15 days into the tax year), every shareholder's signature, and a fax machine. That part — prepared correctly, faxed same-day with proof, tracked to the acceptance letter — is what we do for $149.
Questions
Can I switch back if I don't like it?
Revoking an S election is possible but sticky (a five-year wait to re-elect, generally). It's a decision worth making once, correctly — with your CPA.
Does an S-corp reduce income tax?
Mostly no — the savings are self-employment/payroll tax. Income tax largely follows profit either way, with second-order effects your CPA can model.