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LLC vs Sole Prop Calculator

Should you form an LLC? AI analyses your situation and recommends the right structure.

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About the LLC vs Sole Prop Calculator

For US freelancers, the money question about forming an LLC is whether an LLC taxed as an S-Corp cuts self-employment tax by more than it costs to run. This US-specific calculator compares an estimated tax bill as a sole proprietor with one as an LLC that has made the S-Corp election, using your revenue, expenses, other household income and state LLC fee.

How the estimate works. Profit is revenue minus expenses; the sole prop pays 15.3% self-employment tax on 92.35% of profit, plus a flat 22% income tax on profit and other income. The LLC + S-Corp scenario assumes a reasonable salary of 50% of profit, charges 15.3% payroll tax on that salary only, applies the same 22% rate, then adds your state fee and a flat $800 for extra running costs.

Worked example. With the default inputs ($80,000 revenue, $15,000 expenses, no other income and a $150 state fee), profit is $65,000. Self-employment tax is about $9,184 and income tax is $14,300, so the sole prop estimate is about $23,484. With the S-Corp election, payroll tax on a $32,500 salary is about $4,973; add $14,300, $150 and $800 and the estimate is about $20,223, roughly $3,262 a year less, so the tool recommends "LLC + S-Corp election."

Reading the result. The gap is the payroll tax avoided on distributions (roughly 6.5% of profit here) minus the fees, so at low profit the fixed costs win and the tool recommends a sole proprietorship. A single-member LLC without the S-Corp election is generally taxed like a sole prop by default.

Know the limits. The model ignores tax brackets, the Social Security wage base, the half-SE-tax and QBI deductions, state income tax and real payroll and bookkeeping costs, and the IRS judges reasonable salary by what the work is worth, not a fixed 50%. This is general education, not tax or legal advice; confirm with a CPA or attorney before forming an LLC or electing S-Corp status.

How to use it

  1. Enter your annual revenue. Type your expected yearly business revenue in dollars.
  2. Enter your business expenses. Add your deductible business costs so the tool can work out your profit.
  3. Add other household income. Enter any other taxable household income, such as a spouse's wages, or leave it at 0.
  4. Enter your state LLC fee. Type the yearly LLC filing or franchise fee you expect to pay in your state.
  5. Compare the two tax estimates. Review the sole prop and LLC + S-Corp estimates, the annual savings and the recommendation.
  6. Click "Explain my situation" (optional). Get an AI explanation of what the numbers mean for you.

Frequently asked questions

How does the LLC vs sole prop calculator estimate self-employment tax?

It multiplies your profit by 92.35% and applies the 15.3% self-employment tax rate (Social Security plus Medicare). It does not apply the Social Security wage base cap or the income-tax deduction for half of self-employment tax, so results for higher earners are rougher.

Why does the LLC vs sole prop calculator assume a 50% reasonable salary?

S-Corp owners who work in the business must pay themselves a reasonable salary through payroll before taking distributions, and the tool uses 50% of profit as a simple placeholder. The IRS looks at what similar work would pay, so your real salary could be higher or lower, which changes the savings.

At what profit does an S-Corp election start to save money in the LLC vs sole prop calculator?

In this model the payroll-tax saving is about 6.5% of profit, so with a $150 state fee the break-even is roughly $14,700 of profit, and each extra $100 of state fees raises it by about $1,540. Real costs such as a payroll service, a separate S-Corp tax return and bookkeeping can push the practical break-even much higher, which is why the tool suggests revisiting at $50k+ net profit when the LLC doesn't come out ahead.

Does other household income change the LLC vs sole prop calculator's recommendation?

No. The tool applies one flat 22% income-tax rate to profit plus other income in both scenarios, so other income raises both estimates by the same amount and leaves the savings unchanged. In real life your bracket matters, so treat the totals as rough.

Does the LLC vs sole prop calculator include state income tax or my state's LLC costs?

It doesn't model state income tax. State costs come only from the fee you type in, so check your state's filing fee plus any annual report or franchise tax (California, for example, has an $800 minimum annual franchise tax) and enter the yearly amount you'll actually pay.

Is a plain LLC taxed differently from a sole proprietorship in the LLC vs sole prop calculator?

The calculator only compares a sole proprietorship with an LLC that has elected S-Corp taxation. A single-member LLC without that election is generally taxed like a sole prop by default, so it would show no tax difference; confirm your situation with a tax professional.

LLC vs Sole Prop Calculator by state

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