Tax Savings Calculator: LLC vs S-Corp vs Partnership, which Structure Saves You the Most Money?
- Tammy Hoang
- Nov 7
- 5 min read
Are you leaving $10,000+ on the table every year? If you're a construction company owner, medical practice physician, or law firm partner earning six figures, the answer is probably yes—and you might not even know it.
Here's what most business owners don't realize: the entity structure you choose isn't just about legal protection or paperwork. It's about cold, hard cash. The difference between operating as an LLC versus an S-Corp can mean $8,000 to $25,000+ in annual tax savings. Over a decade, that's a quarter-million dollars staying in your pocket instead of going to the IRS.
The problem? Most business owners chose their structure years ago based on what was easy or what their accountant recommended at startup when they were earning $40,000. Now they're netting $150,000, $250,000, or more, and nobody's told them it's time to reassess.
Why Your Entity Structure Matters More as You Earn More
When you're starting out and barely profitable, entity structure doesn't dramatically impact your taxes. But once your net profit crosses $75,000-$100,000, the math changes completely.
The core issue: Self-employment tax.
As a business owner, you pay 15.3% self-employment tax on your business profit, that's Social Security (12.4%) and Medicare (2.9%). This is on TOP of your regular income tax. For an LLC owner netting $150,000, that's $22,950 in self-employment tax alone before you even pay income tax.
But here's the opportunity: Not all entity structures treat income the same way. S-Corps let you split income into salary (subject to payroll tax) and distributions (not subject to self-employment tax). This is 100% legal and IRS-approved if done correctly.
The question isn't whether you should optimize your structure. The question is: How much are you losing by not optimizing? Let's run the numbers.
Understanding Your Current Tax Burden
Before we compare structures, you need to understand what you're paying now. Most business owners can't tell you their exact tax burden, they just know April hurts.
Step 1: Calculate Your Net Profit
This is NOT your revenue. It's what's left after all business expenses:
Revenue: $500,000
Minus expenses: $320,000
Net profit: $180,000
This is the number that determines which entity structure saves you the most.
Step 2: Identify Your Current Structure
Are you currently operating as:
Sole proprietor (no formal entity)
Single-member LLC (default: taxed like sole proprietor)
Multi-member LLC (default: taxed as partnership)
S-Corporation
Partnership
If you're not sure, ask your accountant or check your most recent tax return. Sole proprietors file Schedule C. S-Corps file Form 1120-S. Partnerships file Form 1065.
Step 3: Calculate Your Self-Employment Tax
For sole proprietors and single-member LLCs:
Net profit × 15.3% = Self-employment tax
Example: $180,000 × 15.3% = $27,540
This is BEFORE income tax. You'll pay another $30,000-$50,000+ in federal and state income taxes depending on your bracket and state.
Now let's see how different structures change this number.
The LLC Tax Calculation: Simple but Expensive at Scale
How LLCs Are Taxed:
Single-member LLCs are "disregarded entities" for tax purposes. The IRS treats you and your business as the same entity. All profit flows to your personal tax return on Schedule C, and you pay self-employment tax on 100% of it.
The Formula:
Net Profit × 15.3% = Self-Employment Tax (Up to $168,600 for 2024, then 2.9% Medicare continues on all income above) |
Real Example: Construction General Contractor
Net profit: $150,000
Self-employment tax: $150,000 × 15.3% = $22,950
Income tax (24% bracket): $150,000 × 24% = $36,000
State tax (5% avg): $150,000 × 5% = $7,500
Total tax burden: $66,450 (44% of net profit)
Real Example: Family Medicine Physician
Net profit: $220,000
Self-employment tax: $168,600 × 15.3% + ($51,400 × 2.9%) = $27,297
Income tax (32% bracket): $220,000 × 32% = $70,400
State tax (5% avg): $220,000 × 5% = $11,000
Total tax burden: $108,697 (49% of net profit)
Real Example: Estate Planning Attorney
Net profit: $165,000
Self-employment tax: $165,000 × 15.3% = $25,245
Income tax (24% bracket): $165,000 × 24% = $39,600
State tax (5% avg): $165,000 × 5% = $8,250
Total tax burden: $73,095 (44% of net profit)
The Problem: As your profit grows, that 15.3% self-employment tax eats a bigger and bigger chunk. There's no deduction, no offset just a straight 15.3% off the top.
The S-Corp Tax Calculation: Strategic Income Splitting
S-Corps let you split your income into two categories:
Salary (W-2 wages): Subject to payroll taxes (same 15.3% as self-employment tax)
Distributions (dividends): Subject to income tax ONLY, not payroll/self-employment tax
This is the key to S-Corp savings.
The Formula: (Both salary and distributions still subject to income tax)
Reasonable Salary × 15.3% = Payroll Tax Distributions × 0% = No additional payroll tax |
The IRS Rule: You must pay yourself a "reasonable salary" for the work you do. You can't pay yourself $20,000 and distribute $200,000, the IRS will reclassify it and penalize you.
What's "Reasonable" by Industry:
Construction GC/PM: $75,000-$95,000
Physicians (family medicine): $140,000-$180,000
Attorneys (experienced): $90,000-$130,000
Let's rerun our examples as S-Corps:
S-Corp Example: Construction General Contractor
Net profit: $150,000
Reasonable salary: $85,000
Distributions: $65,000
Tax Calculation:
Payroll tax: $85,000 × 15.3% = $13,005
Income tax: $150,000 × 24% = $36,000 (same as LLC)
State tax: $150,000 × 5% = $7,500 (same as LLC)
Total tax burden: $56,505
Compared to LLC: Saves $9,945/year
S-Corp Example: Family Medicine Physician
Net profit: $220,000
Reasonable salary: $140,000
Distributions: $80,000
Tax Calculation:
Payroll tax: $140,000 × 15.3% = $21,420
Income tax: $220,000 × 32% = $70,400
State tax: $220,000 × 5% = $11,000
Total tax burden: $102,820
Compared to LLC: Saves $5,877/year
Wait, why less savings for the physician? Because their salary is higher (IRS expects physician salaries to be substantial), so less income qualifies as distributions.
S-Corp Example: Estate Planning Attorney
Net profit: $165,000
Reasonable salary: $100,000
Distributions: $65,000
Tax Calculation:
Payroll tax: $100,000 × 15.3% = $15,300
Income tax: $165,000 × 24% = $39,600
State tax: $165,000 × 5% = $8,250
Total tax burden: $63,150
Compared to LLC: Saves $9,945/year
Your Action Plan: Calculate Your Potential Savings
Step 1: Pull your most recent tax return and find your net business profit.
Step 2: Use these formulas:
Current LLC Tax:
Net Profit × 15.3% = Self-Employment Tax Add income tax + state tax = Total Tax Burden |
Potential S-Corp Tax:
Reasonable Salary × 15.3% = Payroll Tax Add income tax + state tax = Total Tax Burden |
Subtract S-Corp compliance costs ($3,000-$5,000)
Your Savings: Current LLC Tax - Potential S-Corp Tax = Annual Savings
Step 3: If your savings exceed $5,000/year, it's time to seriously consider converting.
Step 4: Don't DIY this. The cost of a mistake (missed filing deadline, incorrect reasonable salary, improper distributions) far exceeds the cost of professional guidance.
The Bottom Line: Stop Guessing, Start Calculating
If you're a construction company owner, medical practice physician, or law firm partner earning $100,000+ in net profit and still operating as a basic LLC or sole proprietorship, you're almost certainly overpaying the IRS.
The numbers don't lie:
$100K profit: ~$5,000/year in unnecessary taxes
$150K profit: ~$10,000/year in unnecessary taxes
$200K profit: ~$15,000/year in unnecessary taxes
$300K profit: ~$25,000/year in unnecessary taxes
Over a 10-year period, that's $100,000 to $250,000 that could have stayed in your business funding growth, hiring staff, or simply increasing your take-home pay.
The question isn't whether you should optimize your entity structure. The question is: How much longer can you afford not to?
Take Action Today: Get Your Personalized Tax Savings Analysis
At Pathfinding Consultants, we've been running these exact calculations for construction companies, medical practices, and law firms for over 20 years. We know the industry-specific nuances, state tax complications, and IRS audit triggers that generic advice misses.
We've helped clients save:
Construction companies: $12,000-$35,000 annually
Medical practices: $15,000-$45,000 annually
Law firms: $10,000-$60,000 annually (multi-partner firms)
Stop leaving money on the table. Schedule your tax savings analysis today. Your business earned that profit. Make sure you're keeping as much of it as the law allows.
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