Tax differences between Sole Proprietorship and LLC/Scorp
Calculate your take-home pay, compare S-Corp vs Schedule C, and analyze multiple jobs
Compare the tax burden between incorporating as an S-Corp (W-2 salary + K-1 income) and remaining a Schedule C sole proprietor (1099)
CA FTB corporate income tax is $800 annually for all businesses with gross revenue under $250,000 and gets larger as revenue increases
Total deductible business expenses
S-corp owners must take a reasonable salary
Distributions from S-corp with negative equity will result in taxable income at capital gains tax rate
W-2 Salary (FICA) + K-1 Income (no FICA)
Business Net Income
$120,000
Taxable Income: W-2 Salary: $60,000 + Net Income reported on K1: $60,000
Total Taxes & Costs
$30,813
Effective Tax Rate
25.68%
Total Available take-home Net Pay
$91,187
W-2 net: $31,187 + Remaining Net Income Reinvested in the Business: $60,000
1099 Self-Employment
Net Income
$120,000
Taxable Income: Net Income
Total Taxes
$37,973
Effective Tax Rate
31.64%
Total Available take-home Net Pay
$82,027
Annual Tax Savings
$7,161
S-Corp saves by reducing self-employment tax on distributions
S-Corp Total Cost
$30,813
25.68% rate
Schedule C Total Tax
$37,973
31.64% rate
Total Available take-home Net Pay Comparison
S-Corp
$91,187
Schedule C
$82,027
Why S-Corp Saves Money
With an S-Corp, only your W-2 salary ($60,000) is subject to FICA taxes (15.3%). Your K-1 income ($60,000) flows through to your personal return (Schedule E) and is only subject to income tax—NOT self-employment tax.