LLC vs S-Corp vs C-Corp Calculator

First, the confusion worth clearing up

"Should I be an LLC or an S-corp?" is a question with a false premise, and repeating it has cost people real money. An LLC is a state-law entity — it governs liability, ownership and paperwork with your state. An S-corporation is a federal tax election. They are different layers, and an LLC can be taxed as a sole proprietorship, a partnership, an S-corporation or a C-corporation without changing what it is.

So you are not choosing between an LLC and an S-corp. You are choosing your tax classification, and separately choosing your legal entity. Most small businesses end up as an LLC for the legal layer and then decide the tax layer on the numbers — which is what this calculator does. Forming a corporation to get S-corporation treatment is possible but rarely necessary; the election is available to the LLC you already have.

The three classifications, briefly

Taxed as a sole proprietorship (the default for a single-member LLC), all the profit lands on your return and all of it carries self-employment tax. Simple, no payroll, no second return, and the full 20% §199A deduction is available below the threshold.

Taxed as an S-corporation, you pay yourself a salary, payroll tax applies only to that, and the rest passes through as a distribution. You gain the payroll saving and lose part of the §199A deduction, because a salary is wages rather than business income. Our S-corp comparison works that trade-off through in detail, and the reasonable salary calculator handles the input it depends on.

Taxed as a C-corporation, the company is a separate taxpayer. It pays 21% on its profit, and anything it then distributes to you is taxed again as a dividend. There is no §199A deduction at all.

Why the 21% rate is misleading on its own

Twenty-one percent looks wonderful next to a 32% or 37% personal bracket, and that comparison is how C-corporations get sold to people who should not have one. It is not a like-for-like comparison, because the corporate rate is only the first layer.

Money inside a C-corporation is not yours. Getting it out means either salary — which is ordinary income plus payroll tax — or a dividend, which is taxed at capital gain rates of 0%, 15% or 20%, plus the 3.8% net investment income tax once your income passes $200,000 single or $250,000 jointly. Stack 21% at the corporate level on top of 15% or 20% at the personal level and the combined burden lands in the mid-thirties, before state tax, which most states charge at both levels.

That is why the payout slider above is the single most important input on this page. At a 0% payout the C-corporation often looks best. At 100% it usually looks worst. Almost nobody at freelancer scale can run at 0%, because the profit is what they live on.

When a C-corporation genuinely wins

Two cases, and they are narrower than the marketing suggests.

The first is retaining earnings to fund growth. If you are building something capital-hungry and genuinely leaving profit inside the business for years, paying 21% and reinvesting the rest beats paying 37% personally and reinvesting what is left. This is a deferral rather than a discount — the second layer arrives whenever the money comes out — but a deferral compounding over a decade is worth a great deal. Note the limit: earnings accumulated beyond the reasonable needs of the business can attract the accumulated earnings tax, so "leave it in to avoid tax" is not by itself a defensible plan.

The second, and the real one for anyone building a company to sell, is qualified small business stock under §1202 — which is only available on C-corporation stock. OBBBA expanded it substantially for stock acquired after 4 July 2025: the per-issuer gain exclusion cap rose from $10 million to $15 million, the gross assets test from $50 million to $75 million, and the all-or-nothing five-year holding period became tiered — 50% at three years, 75% at four, 100% at five. Stock acquired on or before that date keeps the old rules.

If there is a realistic prospect of selling the business for a large sum, that exclusion can be worth more than every year of tax difference combined, and it argues for a C-corporation from the beginning. If there is no such prospect — and for most freelance and service businesses there is not — it is irrelevant, and the annual arithmetic is the whole story.

The costs that do not show up as tax

Both corporate classifications mean payroll, a separate federal return, and in many states a franchise or minimum tax whether or not you made money. A C-corporation adds its own complications: fringe benefits become deductible in ways they are not for an S-corporation shareholder, but losses are trapped inside the company rather than flowing to your return, which matters a great deal in early years.

There is also a one-way door worth knowing about. Converting from an S-corporation to a C-corporation is straightforward; converting back, or revoking an S election and re-electing, generally requires waiting five years or obtaining IRS consent. Choose in the expectation of staying.

What most people should take from this

For a freelancer or a service business living on its profit, the honest ranking is usually: plain LLC while profit is modest, S-corporation once the payroll saving clears the running costs, and C-corporation almost never. The 21% headline is real but it is the first of two layers, and the second is the one that decides it.

The exceptions are genuine but specific: you are retaining serious profit for years, or you are building equity you intend to sell and §1202 is in play. If neither is true, the C-corporation column on this page is there mainly to show you why the answer is no.

Frequently asked questions