Schedule C vs S-Corp — Solopreneurs
Schedule C pays SE tax on full income. S-Corp splits income into salary and distributions, avoiding SE tax on the distribution portion. Breakeven ~$60-80K net.
Typically 40-60% of net income. Use BLS wage data for your role.
How the Comparison Works
Enter your net business income and the salary you'd pay yourself under an S-Corp structure. The tool calculates tax under each and shows your breakeven.
1. Schedule C math
SE tax 15.3% up to $168,600 SS wage base, 2.9% Medicare above. No compliance beyond standard 1040 filing.
2. S-Corp math
Payroll tax 15.3% on salary only. Distributions (the rest of your profit) avoid SE tax. Requires payroll service + additional tax prep.
3. Breakeven
S-Corp savings scale with distribution size. Below ~$60K income, compliance cost eats savings. Above ~$100K, S-Corp clearly wins.
Frequently Asked Questions
What is the difference between Schedule C and S-Corp?
Schedule C is the default for sole proprietors — all net business income flows to your 1040 and is subject to SE tax (15.3% up to $168,600). S-Corp is a tax election that splits income into salary (subject to payroll tax) and distributions (not subject to SE tax), requiring you to run payroll for yourself.
At what income does S-Corp start making sense?
Around $60,000-80,000 annual net income for most solopreneurs. Below $60K, S-Corp compliance cost often exceeds SE tax savings. Above $100K, S-Corp almost always wins.
What counts as 'reasonable salary' for an S-Corp?
Compensation a similarly-skilled professional would earn doing your work. Check BLS wage data. Most pay 40-60% of net income. Below 40% is an IRS audit flag.
What does S-Corp compliance actually cost?
Roughly $1,500-3,000/year: payroll service ($480-960), additional tax prep for 1120-S ($500-1,200), state franchise tax or filing fees ($0-800).
Can I pay myself $0 salary and take all distributions?
No. The IRS scrutinizes low/zero salaries on S-Corps specifically because owners abuse the election. Penalties for under-compensation include back payroll tax, penalties, and interest.
How does health insurance affect the decision?
Schedule C filers deduct premiums above the line. S-Corp owners deduct premiums paid by the S-Corp but must include them in W-2 wages (additional payroll tax, though not SE tax). Generally neutral between structures.
Track SE Tax Impact in Real-Time
See projected self-employment tax monthly as your income changes — and a running alert when S-Corp breakeven is hit.