Operation Solo

Sole Proprietor → S-Corp Breakeven Calculator

The S-corp pitch is real: distributions skip self-employment tax. The catch is also real: payroll, a second tax return, state fees, and the IRS's reasonable salary rule. Enter your numbers and see where the savings beat the costs — with 2026 figures.

Admin covers payroll service, the Form 1120-S return, state filings. Commonly $2,000–$5,000/yr — use your CPA's quote if you have one.

Note: this is tax arithmetic, not tax advice. It ignores the QBI deduction interaction, state payroll and unemployment taxes, retirement-plan contribution differences, and multi-member complications. The Form 2553 election is due 2 months and 15 days after the start of the tax year it covers (March 15 for calendar-year businesses) — late-election relief exists under Rev. Proc. 2013-30. Talk to a CPA before electing; undoing an S election locks you out for five years without IRS consent.

Companion tool: the full Self-Employment Tax split these numbers are built on →

Estimated taxes change under an S-corp

Our $24 1099 Contractor Tracker keeps your income, expenses, and quarterly estimates in one place — and adapts when your tax picture changes. Get the free quarterly-tax checklist sampler:

Common questions

Should I switch from sole proprietor to S-corp as a freelancer?

The math usually favors the switch once your net profit clearly exceeds what a reasonable salary plus admin costs would consume — commonly cited around the mid-$40,000s and up. The S-corp saves roughly the 15.3% self-employment tax on profit above your salary, but payroll service, the extra tax return, and state costs eat the first slice. This calculator finds your personal breakeven from your own salary and costs.

How do I pick a reasonable S-corp salary?

The IRS requires 'reasonable compensation' — roughly what you would pay an outsider to do your job (Rev. Rul. 74-44). In the Watson case, courts recharacterized a CPA's $24,000 salary as $91,044. Setting the salary far below your profit is the most commonly audited S-corp pattern — set it against comparable pay data and document your reasoning.

When is the Form 2553 S-corp election deadline?

Form 2553 must be filed within 2 months and 15 days of the start of the tax year the election should cover — March 15 for calendar-year businesses. Miss it and the election takes effect the following tax year. Late-election relief exists under IRS Rev. Proc. 2013-30 for honest misses.