Business & Startups

LLC vs Sole Proprietor Calculator (Costs, SE Tax & S-Corp Option)

Should I form an LLC? This calculator answers the LLC vs sole proprietorship taxes question with the truth most comparisons bury: forming a default LLC does not change your federal taxes at all, because the IRS treats a single-member LLC as a disregarded entity. Enter your net self-employment profit and your state's fees, and the calculator shows the self-employment tax you owe under BOTH structures (identical, side by side), how much an LLC actually costs per year in formation and annual state fees, and — if you toggle the S-corp election — the estimated payroll-tax savings and the break-even profit where the election starts paying for itself. A 3-year total-cost table puts all three paths on one line. Educational estimate of federal self-employment tax and typical state fees only — not tax or legal advice. State fees vary widely (e.g., California's $800 franchise tax); consult a CPA before choosing a structure.

Self-employment tax — identical for both structures

$12,716.60/yr

A default single-member LLC is a disregarded entity: you owe this same SE tax as a sole proprietor or as an LLC, on net earnings of $83,115.00 (92.35% of profit).

LLC admin, year 1

$375.00

filing + annual fee + agent

LLC admin, ongoing

$225.00/yr

annual fee + agent

3-year total cost (SE tax + admin)

Sole proprietorDefault LLC
3-year cost breakdown
StructureSE tax × 3Admin, 3 yrTotal
Sole proprietor$38,149.79$0.00$38,149.79
Default LLC$38,149.79$825.00$38,974.79

Simplified model: excludes the 0.9% Additional Medicare Tax above $200k and the deduction for one-half of SE tax. Not tax or legal advice.

Compare scenarios

Run the same calculation with two or three input sets side by side. Differences are highlighted; every number comes from the same tested formula as the calculator above.

InputScenario AScenario B
Net Profit
State Filing Fee
Annual State Fee
Registered Agent Fee
S Corp Election
Reasonable Salary
Payroll Admin Cost

How it works

The tax side is deliberately identical for both structures. Net earnings from self-employment are 92.35% of your net profit (the factor on the IRS self-employment tax page and Schedule SE), and the tax is 12.4% Social Security on net earnings up to the 2026 wage base of $184,500 (IRS Topic 751) plus 2.9% Medicare with no cap — 15.3% combined below the base. A single-member LLC that has made no election is a disregarded entity per the IRS, so this number is the same whether you incorporate or not; the calculator shows it as one figure under two labels on purpose. Two disclosed simplifications: the 0.9% Additional Medicare Tax above $200,000 and the income-tax deduction for one-half of SE tax are excluded from the model.

What actually changes with an LLC is administration cost. Year one is the state filing fee plus the annual report or franchise fee plus a registered agent fee if you pay for one; ongoing years drop the filing fee. All three fees are editable inputs rather than a 50-state lookup table, because they vary enormously — the defaults ($150 filing, $100 annual, $125 agent) are order-of-magnitude conventions, and California sits at the far end with an $800 annual franchise tax (California FTB). Set the agent fee to zero if you act as your own registered agent.

The S-corp toggle models the one election that does move the tax number, in a simplified and disclosed way: you pay yourself a reasonable salary (payroll-taxed as usual) and the remaining profit is distributed free of self-employment tax, so estimated savings ≈ (net earnings − salary) × 15.3% minus the payroll and admin cost the election forces you to take on. The savings clamp to zero when the salary covers all earnings, and the approximation is most accurate while salary and net earnings sit below the wage base. The calculator also solves the break-even profit — the point where the tax saved equals the payroll admin cost — and folds everything into a 3-year total-cost comparison of sole proprietorship, default LLC, and LLC with S-corp election.

Frequently asked questions

Does forming an LLC lower my taxes?+

By default, no: the IRS treats a single-member LLC as a disregarded entity, so federal income tax and self-employment tax are computed exactly as they are for a sole proprietor — that is why this calculator shows one identical SE-tax figure for both structures. What changes when you form an LLC is legal separation of business liabilities from your personal assets, plus the option to elect S-corp taxation later once the numbers justify it. Anyone promising that the LLC itself cuts your federal tax bill is selling the formation, not the math.

Then why form an LLC at all?+

Three honest reasons, none of them federal tax: liability separation (business obligations stay with the business rather than reaching your personal assets, provided you maintain the entity properly), credibility with clients, banks, and vendors who prefer contracting with a registered entity, and the S-corp on-ramp — an LLC can later elect S-corp taxation without re-forming. The SBA's business-structure guide covers these trade-offs qualitatively; this calculator prices them, so you can see whether the annual admin cost is worth it for your situation.

When does an S-corp election start paying off?+

Roughly when your profit comfortably exceeds a defensible "reasonable salary" plus the payroll and accounting costs the election forces on you — the calculator solves that break-even profit for your exact numbers. Two cautions: "reasonable salary" is an IRS requirement, not a dial you can turn to zero, and setting it unrealistically low to inflate the distribution slice is a recognized audit risk. And the savings estimate here is simplified (full 15.3% on the distribution slice, no Additional Medicare Tax, no half-SE-tax deduction), so treat a thin margin over break-even as a maybe, not a yes — run the real decision past a CPA.

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