LLC vs Sole Proprietor Tax Calculator

About this calculator

A sole proprietor pays self-employment tax on the entire net profit of the business, covering both the employer and employee shares of Social Security and Medicare with no way to split income into a lower-taxed category. Electing S-corporation tax treatment for an LLC changes that: the owner becomes an employee who draws a “reasonable salary” subject to payroll tax, while any remaining profit is distributed as a dividend-like distribution that is not subject to self-employment or payroll tax at all.

This structural split is why growing freelancers, consultants and small-business owners compare the two: the sole-proprietor route is simpler and cheaper to run (no separate payroll, no reasonable-salary judgment call, minimal filings), while the S-corp election adds real administrative cost — running payroll, filing a separate business return, and defending the salary figure against tax-authority scrutiny — in exchange for shrinking the base subject to self-employment-style tax. Liability protection is a separate question entirely: forming an LLC (with or without the S-corp election) shields personal assets from business debts and lawsuits in a way a sole proprietorship never does.

This calculator compares the self-employment tax a sole proprietor owes against the payroll tax on a reasonable salary plus untaxed distribution inside an S-corp-taxed LLC, so you can see the structural gap before deciding whether the added complexity is worth it.