California S-Corp Election Savings Calculator
California has a graduated state income tax with a top rate of 13.30%. Set your expected net profit and a reasonable salary to see whether an S-corp election beats staying a sole proprietor or default LLC in California for 2026.
Sole prop / default LLC
Take-home pay
$86,225
Social Security
$13,742
Medicare
$3,214
Federal income tax
$11,506
California income tax
$5,313
S-corp election
Take-home pay
$89,264
Payroll tax
$9,945
Federal income tax
$14,064
California income tax
$5,527
Admin costs
$1,200
Electing S-corp status could save you
$3,039 per year
The distribution portion of your profit skips the 15.3% self-employment tax entirely — it's only subject to ordinary income tax. That's the whole S-corp savings mechanism. It's offset by payroll tax on the salary you must pay yourself, plus payroll processing and extra tax-prep costs. The IRS requires "reasonable compensation" for your salary — pay yourself too little relative to your work and distributions, and it can be recharacterized as wages on audit.
Frequently asked questions
How do I actually elect S-corp status? +
File Form 2553 with the IRS for your LLC or corporation to be taxed as an S-corp. This is a tax election on top of your existing legal entity, not a new type of business structure by itself.
What counts as 'reasonable compensation'? +
There's no fixed IRS formula — it's generally what you'd have to pay someone else to do your job, given your time, skills, and industry norms. Salaries that look too low relative to profit and distributions are a well-known audit trigger.
Is an S-corp election always better than staying a sole prop? +
No. Payroll processing and extra tax-prep costs can outweigh the self-employment tax savings at lower profit levels. It usually only pays off once net profit clears roughly $60,000-$80,000, and the exact breakeven point depends on your specific salary and costs — which is exactly what this calculator checks.
Do I need payroll software for an S-corp salary? +
Practically, yes. You need to run real payroll — with tax withholding, quarterly payroll filings, and a W-2 at year-end — even if you're the only employee.
Does an S-corp election reduce my QBI deduction? +
It can. Wages you pay yourself are excluded from qualified business income, so only the distribution portion qualifies for the 20% QBI deduction — this calculator already accounts for that.
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