How Much Could S-Corp Save You? A Real Contractor's Numbers
You just finished your first full year in business. Net profit: $180,000.
Way more than you expected. You're proud of what you built.
Then you sit down to file your taxes and see the self-employment tax bill: $25,515.
That's before federal income tax. Before state tax. Just the self-employment piece.
You're thinking: "There has to be a better way."
There is. It's called S-Corp election. And for contractors making $120,000-$220,000 in net profit, it can save you $8,000-$12,000 annually.
But it's not automatic. And there's a March 15 deadline most people don't know about.
Here's what S-Corp actually saves—using real numbers from a real contractor.
A Real Scenario
A contractor came to me last month for tax prep. First full year in business as a sole proprietor. Net profit: $180,000.
We looked at what they'd paid in self-employment tax for 2025: $25,433.
I said: "You have options for 2026."
One of those options? S-Corp election.
What About My LLC?
S-Corp isn't a new business structure. It's a tax election. You keep your LLC. You just elect to be taxed differently.
Here's how it works:
As a sole proprietor: You pay 15.3% self-employment tax on your entire net profit.
As an S-Corp: You split your income into two buckets:
Salary – subject to payroll tax (same 15.3%)
Distributions – NOT subject to self-employment tax
You still pay income tax on the full amount. But you skip the 15.3% self-employment tax on the distributions.
The key is the salary has to be "reasonable"—what someone doing your job would earn in the market.
For contractors, that's typically 40-50% of net profit.
But Can I Really Save Money?
For the contractor with $180,000 in net profit, here's what S-Corp looks like:
Reasonable salary: $72,000 (40% of profit)
Why 40%? Because profit includes more than just labor. It includes return on your truck, your tools, your equipment. It includes the risk you take as a business owner. It includes the value of the business itself.
The $72,000 salary reflects the hands-on work—managing jobs, running crews, dealing with clients, doing the actual labor.
Payroll tax on salary: $72,000 × 15.3% = $11,016
Distributions: $108,000 (not subject to payroll tax)
The savings:
Sole proprietor SE tax: $25,433
S-Corp payroll tax: $11,016
Gross savings: $14,417
What It Costs
S-Corp isn't free. You need:
Payroll processing: $1,200/year
S-Corp tax return (Form 1120-S): $2,000/year
Total costs: $3,200
Net savings: $14,417 - $3,200 = $11,217
Over five years, that's $56,085
The March 15 Deadline
To elect S-Corp for 2026, you need to file Form 2553 by March 15, 2026.
Miss that deadline and you're waiting another year—another $25,000+ in self-employment tax.
What if you're reading this after March 15?
You may qualify for late election relief if you have reasonable cause. It requires extra paperwork and isn't guaranteed. But if the savings are $11,000+, it's worth exploring.
Is It Right For My Business?
S-Corp makes sense for contractors making $60,000+ in consistent profit with clean books and a willingness to handle payroll. It doesn't make sense if you're in year one with unpredictable income, your profit is under $60,000, or your books are a mess.
But the real answer? It depends on your actual numbers—not a blog post, not advice from another contractor at the job site. Want to see your actual numbers? Try our S-Corp calculator
The Bottom Line
For a contractor with $180,000 in net profit, S-Corp saves roughly $11,200 annually. Over five years, that's $56,000
But the decision needs to be made with your actual numbers. Not a blog post. Not a conversation at the supply store. Your numbers.
Leslea Burnett-Little
Enrolled Agent | Tax Advisor | Founder
Simply Balanced Accountants
connect@simplybalancedaccountants.com
(517) 897-2144
