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Should you form an LLC? Elect S-corp status? Here's what each choice does to your taxes and paperwork, with a calculator that compares your total federal tax both ways using 2026 rules.
| Example | Sole prop / LLC tax | S-corp tax + costs | S-corp result |
|---|---|---|---|
| $50,000 profit, $30,000 salary, 12% bracket | $11,526 | $11,698 | $172 more |
| $100,000 profit, $60,000 salary, 22% bracket | $30,486 | $30,260 | $226 saved |
| $150,000 profit, $80,000 salary, 24% bracket | $47,960 | $45,321 | $2,639 saved |
| Same $150,000, no QBI deduction counted | $54,651 | $48,291 | $6,360 saved |
Hand check, row 2. Sole prop: $100,000 × 92.35% = $92,350; SE tax 15.3% = $14,129.55; half of it ($7,064.78) is deductible; QBI deduction 20% × ($100,000 − $7,064.78) = $18,587.04; income tax 22% × $74,348.18 = $16,356.60; total $30,486.15. S-corp: payroll tax 2 × 7.65% × $60,000 = $9,180; K-1 profit $100,000 − $60,000 − $4,590 − $2,000 = $33,410; QBI deduction $6,682; income tax 22% × ($60,000 + $33,410 − $6,682) = $19,080.16; total with costs $30,260.16. Difference: $225.99.
Why the S-corp saving is smaller than many sites say: the salary isn't qualified business income, so the 20% QBI deduction shrinks, and the extra costs come off the top. Turn off the QBI deduction under More options to see the payroll-tax-only answer.
| Sole proprietor | Single-member LLC | S-corp election | C corporation | |
|---|---|---|---|---|
| Protects your personal things from business debts | No | Yes, limited liability (state law) | Yes, if it's an LLC or corporation | Yes |
| Federal income tax | On your return (Schedule C) | Same as sole prop by default | Profit passes to your return (K-1) | 21% at the company, then tax on dividends |
| Social Security + Medicare | 15.3% SE tax on 92.35% of profit | Same as sole prop | Only on your salary | Only on salaries |
| Extra paperwork | Least | State filing + yearly report | Payroll + Form 1120-S return | Form 1120 + payroll |
| Tennessee franchise & excise tax | No | Yes | Yes | Yes |
Sources: IRS LLC page, IRS SE tax, IRS S corporations, 26 U.S.C. 11, TN F&E manual. An S-corp is a tax election (Form 2553), not a kind of company: an LLC or a corporation can make it. Limited liability doesn't cover debts you personally guarantee.
A one-owner LLC is taxed like a sole proprietor unless it elects otherwise; two or more owners are taxed as a partnership. Form 8832 or Form 2553 changes that (IRS LLC page).
As a sole proprietor you pay 15.3% self-employment tax on 92.35% of profit (IRS SE tax, Schedule SE). As an S-corp, Social Security and Medicare tax is due only on your salary; the rest of the profit isn't hit by it.
The IRS says an S-corp must pay owner-employees reasonable pay for their work before taking other distributions, and it can reclassify distributions as wages (IRS reasonable pay). Paying yourself too little to save tax is a known audit issue.
Payroll every pay period, a separate Form 1120-S tax return each year, and state fees. Enter your own estimate in the calculator: it changes the answer.
A U.S. corporation or LLC with no more than 100 shareholders, one class of stock, and only allowed owners (people, some trusts and estates; not partnerships, corporations or nonresident aliens) (IRS S corporations).
File Form 2553 no more than 2 months and 15 days after the start of the tax year it should apply to: by March 15 for a calendar year that's already running. All shareholders sign (Form 2553 instructions).
Social Security tax stops at $184,500 of wages or self-employment earnings in 2026 (SSA wage base, IRS Pub. 15). Medicare has no cap, and 0.9% more applies above $200,000 ($250,000 joint) (IRS Topic 560).
LLCs and corporations, including S-corps, pay Tennessee franchise & excise tax: 6.5% of net earnings plus 0.25% of net worth, at least $100 a year. Sole proprietors and general partnerships don't. A one-owner LLC is not ignored for this tax (TN F&E manual, TN F&E rates).
Facts and math only, not tax or legal advice. We show IRS and state rules and do math on the numbers you type. Before you file Form 2553 or form a company, a CPA or enrolled agent can check your numbers and your state's rules. No company pays to be on this page, and there are no partner links.
Not by itself. A one-owner LLC is taxed like a sole proprietor by default, and an LLC with two or more owners is taxed as a partnership. An LLC can elect to be taxed as an S corporation (Form 2553), which is where the savings can come from.
When your profit is well above a reasonable salary for your work. Example (2026, single, 22% bracket, $2,000 extra costs): $100,000 profit and a $60,000 salary saves about $226 a year, after the smaller QBI deduction and costs.
File Form 2553 no more than 2 months and 15 days after the start of the tax year the election should take effect: March 15 for a calendar year (IRS Form 2553 instructions).
Yes. LLCs and corporations, including S corporations, pay Tennessee franchise & excise tax (6.5% excise on net earnings, 0.25% franchise on net worth, $100 minimum). Sole proprietors and general partnerships don't (TN Department of Revenue manual, June 2026).
Estimates, not financial advice. Taxes, insurance, PMI and fees vary by lender, county and city; confirm with your lender, dealer and state agency before acting.
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