Would an S-corp save you money?

How it works

Where the difference comes from

Today

As a sole proprietor or single-member LLC, you pay self-employment tax of 15.3% on almost all of your profit, on top of income tax.

As an S-corp

You pay yourself a salary through payroll. Payroll taxes apply to the salary, and the rest of the profit passes through without them. That gap is where the savings come from.

The salary has to fit the work

The IRS compares an owner’s salary with what businesses pay for similar work. So the estimate starts from Florida wage data for your trade, or for managers in your field if you mostly run crews and the business, instead of a low number that wouldn’t hold up. Your real salary depends on your duties, hours and experience.

What it costs

A payroll service and a separate business return, which we assume at $1,500 to $2,500 a year, plus Florida reemployment tax and federal unemployment tax on your salary. Below the higher-income range, your QBI deduction also gets smaller, because salary doesn’t count toward it.

At higher incomes

Above about $200,000 of taxable income ($400,000 for joint filers), the 20% QBI deduction is capped by the W-2 wages a business pays and the equipment it owns. An S-corp’s salary to you counts as wages, which can raise that cap. So at that level the estimate asks about employees and equipment, which can move the answer a lot in either direction.