C-Corp vs S-Corp Tax Calculator

A C-Corp pays a flat 21% corporate tax on profits, then shareholders pay qualified dividend tax (15-20%) when profits are distributed — this is double taxation. An S-Corp passes income directly to shareholders who pay ordinary income tax once, avoiding the corporate layer. Most small business owners save money with S-Corp status.

An S-Corp election typically makes sense once net profit exceeds $40,000-$50,000 per year. The payroll tax savings on distributions (vs. sole prop) outweigh the added cost of running payroll and filing a separate return. At very high incomes ($500K+), a C-Corp may become attractive for profits retained and reinvested into the business.

The IRS requires S-Corp owner-employees to pay themselves a "reasonable compensation" salary before taking distributions. Reasonable compensation is typically based on what you'd pay someone else to do the same work — often 40-60% of business profits. Paying too low a salary is a common IRS audit trigger.

A C-Corp can be advantageous when: (1) you plan to reinvest most profits back into the business rather than distributing them — retained earnings are taxed at only 21%, (2) you're raising venture capital (VCs typically require C-Corp structure), or (3) you want to offer ISOs (Incentive Stock Options) to employees. For most profitable small businesses taking distributions, S-Corp wins on taxes.

Yes, but there are constraints. You must meet S-Corp eligibility requirements (US shareholders only, max 100 shareholders, one class of stock). The conversion has tax consequences — built-in gains tax applies to appreciated assets for 5 years post-conversion. Consult a CPA before switching.