Business entity comparison calculator
Compare a sole proprietorship, LLC, S-Corp, C-Corp and partnership on tax and running costs. It’s an estimate from your numbers, not advice; Krystal checks the real picture on a call.
Net profit before paying yourself: what's left after all business expenses.
S-Corp salary assumption
S-Corp owners must take a reasonable salary. The IRS has no percentage rule: it's what the business would pay someone else to do your job.
Best fit for your inputs
LLC with S-Corp Election
The S-Corp election reduces your self-employment tax burden while maintaining pass-through taxation.
Estimated yearly cost
Illustrative$23,010 / year
Tax of $20,510 plus $2,500 in running costs. About $3,083 a year less than a sole proprietorship.
| Line item | Value |
|---|---|
| Total cost over 5 years | $115,600 |
| Complexity: significant compliance | Complex (4 of 5) |
S-Corp check
An S-Corp covers its costs here
Running costs are recovered in under a year.
Why it fits
- SE tax savings on distributions
- Liability protection
- Pass-through taxation
- Flexibility to revert to LLC taxation
S-Corp running costsTotal: $3,650/year · Net: -$567
An S-Corp election comes with ongoing costs. These are assumptions, not quotes; adjust them to match your setup.
Monthly payroll processing, W-2s, tax deposits Typical: $500–$2,000.
Annual S-Corp tax return preparation Typical: $500–$1,500.
Required for legal compliance Typical: $100–$300.
S-Corp requires separate books, payroll records Typical: $1,000–$3,000.
Annual report fees, state-specific taxes Typical: $0–$800.
Total annual running costs
$3,650
After running costs
Net annual cost: $567
At this profit, the running costs exceed the payroll-tax difference.
Every structure, side by side
| Structure | Tax | Running | Total |
|---|---|---|---|
| S-Corp (best fit) | $20,510 | $2,500 | $23,010 |
| Sole Prop | $26,093 | $0 | $26,093 |
| LLC | $26,093 | $200 | $26,293 |
| C-Corp | $30,518 | $3,500 | $34,018 |
S-Corp (best fit)
LLC with S-Corp Election · complexity complex (4 of 5) · forms Form 1120-S, Schedule K-1, W-2
Tax
- Federal income tax
- $9,494
- Payroll taxes
- $11,016
- Total tax
- $20,510
Income split
- Salary
- $72,000
- Distributions
- $48,000
Running costs
- Registered agent
- $125
- Payroll service
- $1,200
- Bookkeeping
- $600
- Tax preparation
- $500
- Formation (first year only)
- $550
For
- SE tax savings on distributions
- Liability protection
- Pass-through taxation
Against
- Payroll complexity and costs
- Reasonable salary requirement
- Additional tax filings (1120-S)
Suits: Businesses with steady profit and an owner who works in the business
Less suited to: Startups or businesses with low or uneven profit
Sole Prop
Sole Proprietorship · complexity very simple (1 of 5) · forms Schedule C, Schedule SE
Tax
- Federal income tax
- $9,138
- Self-employment tax
- $16,955
- Total tax
- $26,093
For
- Zero formation costs
- Minimal paperwork
- Simple tax filing (Schedule C)
Against
- Unlimited personal liability
- Full self-employment tax on profits
- Harder to raise capital
Suits: Side hustles, freelancers just starting out, low-risk businesses
Less suited to: Businesses with liability exposure or steady, higher profit
LLC
Single-Member LLC · complexity simple (2 of 5) · forms Schedule C, Schedule SE
Tax
- Federal income tax
- $9,138
- Self-employment tax
- $16,955
- Total tax
- $26,093
Running costs
- Registered agent
- $125
- Tax preparation
- $75
- Formation (first year only)
- $300
For
- Liability protection
- Pass-through taxation
- Flexible management
Against
- Full SE tax (same as sole prop)
- Annual compliance costs
- State filing requirements
Suits: Solo businesses wanting liability protection with simple taxes
Less suited to: High-profit businesses (consider S-Corp election)
At $120,000 profit, an S-Corp election would save you $3,283/year in taxes.
C-Corp
C-Corporation · complexity most complex (5 of 5) · forms Form 1120, Quarterly payroll returns
Tax
- Federal income tax
- $3,734
- Payroll taxes
- $11,016
- Corporate tax (21%)
- $10,080
- Dividend tax
- $5,688
- Total tax
- $30,518
Income split
- Salary
- $72,000
- Distributions
- $37,920
Running costs
- Registered agent
- $125
- Payroll service
- $1,200
- Bookkeeping
- $800
- Tax preparation
- $1,200
- Formation (first year only)
- $350
For
- Flat 21% corporate tax rate
- Easier to raise investment
- Stock options for employees
Against
- Double taxation on distributions
- Most complex compliance
- Higher accounting costs
Suits: Businesses seeking investors, retaining profits, or planning IPO
Less suited to: Service businesses distributing all profits
Double taxation (corporate + dividend tax) makes this expensive unless you're retaining earnings or raising investment.
Five-year cost, tax plus running costs
- S-Corp (best fit)$115,600
- Sole Prop$130,465
- LLC$131,765
- C-Corp$170,440
S-Corp (best fit): $115,600
| Item | Value |
|---|---|
| S-Corp (best fit) | $115,600 |
| Sole Prop | $130,465 |
| LLC | $131,765 |
| C-Corp | $170,440 |
Year by year
| Structure | Yr 1 | Yr 2 | Yr 3 | Yr 4 | Yr 5 |
|---|---|---|---|---|---|
| S-Corp | $23,560 | $46,570 | $69,580 | $92,590 | $115,600 |
| Sole Prop | $26,093 | $52,186 | $78,279 | $104,372 | $130,465 |
| LLC | $26,593 | $52,886 | $79,179 | $105,472 | $131,765 |
| C-Corp | $34,368 | $68,386 | $102,404 | $136,422 | $170,440 |
Year 1 includes one-time formation costs. Later years are running totals of tax and running costs.
Estimates for a Texas business, federal tax only. Formation and running costs are typical amounts, not quotes. Your other income, deductions and plans change the answer. Results vary. This is not tax advice.
Send this comparison to Krystal
Your inputs and the result go to Krystal with your email, so she can reply about your situation.
At a glance
Entity types side by side.
Each structure has its own tax treatment, liability protection and paperwork.
Sole Proprietorship
- Tax treatment
- Pass-through (Schedule C)
- Self-employment tax
- Full SE tax on all profit
- Liability
- None (personal assets at risk)
- Suits
- Side hustles, freelancers starting out
Single-Member LLC
- Tax treatment
- Pass-through (Schedule C)
- Self-employment tax
- Full SE tax on all profit
- Liability
- Limited liability protection
- Suits
- Solo businesses wanting liability protection
LLC + S-Corp Election
- Tax treatment
- Pass-through (Form 1120-S)
- Self-employment tax
- SE tax only on salary
- Liability
- Limited liability protection
- Suits
- Profitable businesses ($80K+)
C-Corporation
- Tax treatment
- Corporate (Form 1120)
- Self-employment tax
- Payroll tax on salary only
- Liability
- Strongest protection
- Suits
- Businesses raising investment
Partnership
- Tax treatment
- Pass-through (Form 1065)
- Self-employment tax
- Full SE tax for active partners
- Liability
- Limited (varies by type)
- Suits
- Multi-owner businesses
Method
How each structure is taxed.
Sole proprietorship: the default
What you have by default when you earn business income without forming an entity. Income goes on Schedule C of your personal return, with self-employment tax on net profit.
There’s no liability protection: if the business is sued, personal assets are at risk. For many owners that alone is reason to form an LLC.
For: no formation cost, simplest filing. Against: no liability protection, full self-employment tax.
LLC: liability protection, same tax by default
An LLC separates personal assets from the business; generally only business assets are at risk, with exceptions for fraud or personal guarantees.
A single-member LLC is a disregarded entity for tax by default, so the tax matches a sole proprietorship. The difference is the liability shield.
For: liability protection, simple tax. Against: same self-employment tax, yearly running costs.
S-Corp election: salary plus distributions
An S-Corp is a tax election an LLC or corporation can make. You become an employee of your business and pay yourself a reasonable salary.
The salary carries payroll tax; profit above it can come out as distributions without self-employment tax. For a business with $150,000 profit and a $90,000 salary, that’s $60,000 in distributions avoiding roughly $9,000 in SE tax.
The cost: payroll, Form 1120-S and tighter bookkeeping, typically $2,000–$3,000 a year. That’s why it only pays above a certain profit.
C-Corporation: for investment and growth
The most formal structure, and the one investors and public markets expect. Profit is taxed at 21% federal at the corporate level, then again as dividends at 0–20%.
That double taxation makes it a poor fit for most small businesses, unless you:
- plan to raise investment capital
- want to keep significant earnings in the business
- plan to offer stock options
- face a personal rate above the 21% corporate rate
Partnership: for more than one owner
Profit flows to partners under the partnership agreement. Each partner reports a share on their own return and pays self-employment tax on active business income.
A partnership that meets the requirements can elect S-Corp status. For: flexible profit allocation, pass-through tax. Against: full SE tax for active partners, agreements to draft.
What the calculator leaves out
- Your other income and deductions, and state taxes outside Texas.
- Texas franchise tax, which most small businesses under the no-tax-due threshold don’t owe.
- Formation and running costs beyond typical Texas amounts.
Krystal covers those on a call.
FAQ
Entity questions.
What is the difference between an LLC and an S-Corp?
An LLC (Limited Liability Company) is a legal business structure that provides liability protection. An S-Corp is a tax election that can be made by an LLC or corporation. When an LLC elects S-Corp status, the owner can split income between salary and distributions, potentially saving on self-employment tax. However, S-Corp requires payroll, reasonable salary compliance, and additional filings.
When does an S-Corp election make sense?
There's no single break-even number. It depends on your profit, the salary you can defend and what the S-Corp costs to run. At lower profit, payroll and the extra return can cost more than the payroll-tax difference. Try your numbers in the calculator, then talk it through with Krystal.
What is double taxation for C-Corps?
C-Corporations pay corporate income tax (21% federal rate) on their profits. When those profits are distributed as dividends to shareholders, the shareholders pay tax again at qualified dividend rates (0-20%). This "double taxation" makes C-Corps less tax-efficient for businesses distributing all profits, but can be beneficial for businesses retaining earnings or raising investment.
Which business structure is best for a sole owner?
For sole owners, the best structure depends on profit level and priorities. A sole proprietorship or single-member LLC is the simplest. An S-Corp election is worth modeling once profit is steady; there's no single break-even number, because it depends on your profit, the salary you can defend and what the S-Corp costs to run. With high profits you plan to keep in the business, or plans to raise investment, a C-Corp may be worth a look.
Does Texas have state income tax on business entities?
Texas has no state income tax, which simplifies entity comparison. However, Texas does have a franchise tax (also called margin tax) that applies to most business entities with annualized revenue above $2.65 million (2026 reports). Most small businesses fall below this threshold and effectively pay $0 in state business taxes.
What is a "reasonable salary" for S-Corp owners?
The IRS requires S-Corp shareholder-employees to receive "reasonable compensation" for services performed. The IRS has no percentage rule: it is what the business would pay someone else to do the same job, based on duties, hours, industry and market rates. The salary portion is subject to payroll taxes, while distributions are not. Setting salary too low risks IRS scrutiny; too high negates the tax benefit.
Keep reading
Related.
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