LLC vs. S-Corp vs. C-Corp Tax Comparison
Compare the 2026 after-tax outcome of operating as an LLC, S-Corp, or C-Corp at the same profit level. Models the 21% corporate rate, double taxation on dividends, S-Corp salary and distribution split, self-employment tax, and the permanent 20% QBI deduction.
Business Profit
S-Corp Owner Salary
Only the salary is subject to FICA. The rest passes through as a distribution. The IRS requires a reasonable salary.
C-Corp Distribution
Dividends are taxed again at 23.8% (20% qualified dividend + 3.8% NIIT). Undistributed profit stays in the corporation.
2026 Tax Comparison
Enter your profit and click compare.
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Introduction
Choosing your business entity is a tax decision that compounds for the life of the company, and the 2025 One Big Beautiful Bill Act (OBBBA) changed the math. The act made the 20% Qualified Business Income deduction permanent for pass-through entities and kept the C-corporation rate at a flat 21%, while restoring 100% bonus depreciation and immediate R&D expensing. The result is that the right answer now depends less on a single rate and more on how you extract profit: salary, distribution, or dividend. The IRS S corporation page and the QBI deduction guidance lay out the rules. This calculator models all three structures on the same profit so you can see the after-tax difference before you file Form 2553 or stay a default LLC.
What This Calculator Does
This tool compares the 2026 after-tax outcome of operating as a single-member LLC, an S corporation, or a C corporation at the same net profit. It applies the 21% corporate rate and 23.8% dividend tax (20% qualified dividend plus 3.8% Net Investment Income Tax) for the C-corp, the salary-plus-distribution split and 15.3% FICA for the S-corp, and self-employment tax plus the 20% QBI deduction for the LLC. Enter your profit, a reasonable S-corp salary, and the share of C-corp profit you distribute as dividends, and it ranks the three by net cash to the owner.
The Formula
The LLC pays self-employment tax (15.3% up to the 2026 Social Security wage base of $184,500, then 2.9% Medicare) on 92.35% of profit, deducts half of it, and takes a 20% QBI deduction on the remainder before applying individual rates. The S-corp splits profit into a W-2 salary (subject to FICA) and a distribution (not subject to FICA), with the 20% QBI deduction applied to the distribution portion. The C-corp pays 21% at the entity level, and any profit paid out as a qualified dividend is taxed again at 20% plus 3.8% NIIT, producing the double-taxation drag that makes C-corps unattractive for businesses that distribute all profit.
Step-by-Step Example
Enter your annual net profit
A consultant with $150,000 of net business profit enters 150000.
Set the S-corp reasonable salary
She enters a $60,000 W-2 salary. The remaining $90,000 passes through as a distribution not subject to FICA.
Set the C-corp distribution
She assumes 100% of after-tax profit is paid as dividends to see the worst-case double-taxation cost.
Compare the net to owner
The S-corp typically wins for a profitable service business because only the $60,000 salary carries FICA, while the LLC pays self-employment tax on the full $150,000.
Real-World Use Cases
New Business Entity Election
A founder deciding whether to file Form 2553 to elect S-corp status compares the self-employment tax savings against the payroll administration cost of running W-2 wages.
Profit Retention Planning
A software company that reinvests most profit tests the C-corp option, since retained earnings are taxed once at 21% and not again until distributed, which can beat pass-through rates for high-margin growth businesses.
Owner Compensation Structuring
An S-corp owner models different salary levels to find the lowest defensible reasonable compensation, since every dollar moved from salary to distribution avoids 15.3% FICA.
Common Mistakes to Avoid
Setting the S-corp salary too low. The IRS requires reasonable compensation. A $10,000 salary on $300,000 of profit is an audit flag. The savings from a low salary are real, but the back-tax, penalty, and interest exposure is larger.
Forgetting the C-corp double tax on dividends. A C-corp that distributes all profit pays 21% at the entity level and another 23.8% on the dividend, for a combined federal rate near 40% on distributed earnings. The C-corp only wins when profit is retained or when QSBS (Section 1202) applies.
Ignoring state taxes and franchise fees. California, New York, and Illinois impose entity-level taxes or fees on S-corps and LLCs that can erase the federal savings. Add your state rate in the calculator to see the real total.
Assuming the QBI deduction is automatic. The 20% QBI deduction has income thresholds, W-2 wage limitations, and unadjusted-basis limits that phase it down for high-income service businesses. OBBBA made it permanent but did not remove the limitations.
Frequently Asked Questions
Is an LLC or S-corp better for taxes in 2026?
For a profitable service business, an S-corp usually wins because only the reasonable salary is subject to FICA (15.3% up to the $184,500 Social Security wage base), while the rest passes through as a distribution. A single-member LLC pays self-employment tax on the entire profit. The S-corp advantage grows with profit, but you have to run actual payroll and pay a reasonable salary.
When does a C-corp make sense?
A C-corp makes sense when you plan to retain most profit for growth (so it is taxed once at 21% and not again until distributed), when you need to issue preferred stock to investors, or when you qualify for Section 1202 Qualified Small Business Stock, which can exclude up to $15 million of gain on a sale after a 5-year hold. For a business that distributes all profit, the C-corp double tax usually loses.
What is the 2026 Social Security wage base?
The 2026 Social Security wage base is $184,500, up from $176,100 in 2025. FICA is 6.2% Social Security plus 1.45% Medicare on the employee and the same on the employer, for a combined 15.3% up to the wage base and 2.9% above it. Self-employment tax mirrors this on 92.35% of net earnings.
Did OBBBA change the QBI deduction?
The One Big Beautiful Bill Act of 2025 made the 20% Qualified Business Income deduction permanent, where it had been scheduled to sunset after 2025. The W-2 wage and unadjusted-basis limitations still apply above the income threshold, so high-income service businesses may see a reduced deduction. The rate itself did not change.
Accuracy and Disclaimer
This calculator applies 2026 federal tax rules including the permanent 20% QBI deduction under OBBBA, the flat 21% C-corp rate, and the $184,500 Social Security wage base. It does not model the QBI W-2 wage limitations, additional Medicare tax, state pass-through entity elections, or entity-level franchise fees. The S-corp salary is assumed reasonable; the IRS can recharacterize unreasonably low salaries. This is not tax advice. Consult a licensed CPA or tax attorney for your specific situation.
Conclusion
The entity decision is reversible for most small businesses, but the tax cost of picking wrong for even one year can run into five figures. Run your real profit number here, stress-test the S-corp salary against what the IRS would call reasonable, and check the C-corp only if you plan to retain earnings or raise venture capital. For the salary side of an S-corp, pair this with our S-Corp Salary Distribution Calculator and the Self-Employment Tax Calculator to finalize the split.
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