Reasonable salary for S-Corp officer
Compare how $150,000 in business profit is taxed under each entity type in California.
Sole Proprietorship
Single-Member LLC
S-Corporation
Lowest TaxC-Corporation
| Entity Type | Total Tax | Net Income | Eff. Rate |
|---|---|---|---|
| Sole Proprietorship | $53,473 | $96,527 | 35.6% |
| Single-Member LLC | $53,473 | $96,527 | 35.6% |
| S-Corporation | $45,532 | $104,468 | 30.4% |
| C-Corporation | $49,275 | $100,725 | 32.9% |
What is the best business structure?
There is no single "best" structure -- it depends on your specific circumstances. Sole proprietorships are simplest but offer no liability protection. LLCs provide liability protection with pass-through taxation. S-Corps can save on self-employment tax if you pay yourself a reasonable salary. C-Corps face double taxation but offer the most flexibility for raising capital. Consider your income level, growth plans, and liability needs.
What is pass-through taxation?
Pass-through taxation means the business itself does not pay income tax. Instead, profits and losses "pass through" to the owners' personal tax returns. Sole proprietorships, partnerships, LLCs (by default), and S-Corporations all use pass-through taxation. This avoids the double taxation that C-Corporations face, where income is taxed at both the corporate and personal level.
What is the S-Corp salary requirement?
If you elect S-Corp taxation, the IRS requires you to pay yourself a "reasonable salary" for services performed. This salary is subject to FICA taxes (Social Security and Medicare). Any remaining profit can be distributed as dividends, which are not subject to self-employment tax. The IRS scrutinizes unreasonably low salaries, so it must reflect what you would pay someone else for the same work.
What is the Qualified Business Income (QBI) deduction?
The Section 199A QBI deduction allows eligible self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income from their taxable income. This deduction is available for sole proprietors, partnerships, S-Corps, and some trusts and estates. It phases out for service businesses above certain income thresholds ($191,950 single / $383,900 MFJ in 2025).
Important: This comparison is simplified for illustration. Actual tax liability depends on many factors including deductions, credits, state-specific rules, and QBI eligibility. Consult a CPA or tax attorney before choosing a business structure.
Disclaimer: This calculator provides estimates based on current IRS rates and thresholds for the 2025 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your filing status, state of residence, deductions, and individual circumstances. Always consult a qualified tax professional or CPA before making financial decisions. Read our terms
This calculator uses official rates and thresholds from:
- IRS — Business Structures
- IRS Publication 542 — Corporations
- IRS — S Corporations
- IRS — Limited Liability Company (LLC)
Last verified: March 2026 · Tax year 2025. Results are indicative — consult a qualified accountant for personalised advice.