A side-by-side look at your tax as a sole proprietor vs. an S-corporation
Should I Elect S-Corp Status? | Jasper Accountancy
Most MSPs start as an LLC taxed as a sole proprietor, where every dollar of profit carries 15.3% self-employment tax on top of income tax. Electing S-corporation status splits that profit into a reasonable salary (taxed for payroll) and distributions (not), which can save a growing MSP thousands a year in exchange for added compliance.
Rule of thumb: the election usually starts paying off once owner take-home clears roughly $100,000. Below that, the extra cost and admin tend to outweigh the savings. Plug in your numbers to see where you land.
Your S-corp estimate
Total top-line revenue, used for context. The tax math is driven by your take-home below.
The profit the business generates for you each year, before your personal income tax. Roughly your Schedule C net or K-1 income today.
40% · $64,000
The wage you'd pay yourself as an S-corp employee. It must reflect fair value for your work; a figure set too low invites IRS scrutiny. A lower defensible salary means larger savings.
Estimated yearly cost of running the S-corp: payroll processing (about $600), the separate 1120-S return (about $1,200), and more advanced bookkeeping (about $1,800). Adjust to your situation.
S-corp sweet spot
$0$100k$250k+
Total tax as sole prop / LLCSelf-employment plus federal income tax, before 199A
Total tax as S-corpPayroll on salary plus federal income tax, before 199A
Gross annual tax savings
Less: added S-corp cost
Estimated net benefit / year
The other side of the ledger
The dollar figure above already subtracts an estimate for the added cost. The S-corp election also brings real technicalities worth understanding before you file the paperwork.
New hard costs
A second tax return. The S-corp files its own Form 1120-S each year, typically $1,000 to $2,000 in preparation, on top of your personal 1040.
Payroll. You must run formal payroll, withhold and remit taxes, and file quarterly 941s and a W-2. Most owners use a payroll service.
More advanced bookkeeping. Clean, reconciled books become mandatory, not optional. The salary and distribution split and basis tracking depend on them.
Compliance technicalities
Reasonable compensation. Your salary must be defensible. Set it too low to chase savings and you raise audit exposure; the estimate assumes a reasonable figure.
The QBI deduction (199A). The 20% pass-through deduction applies to both structures and can widen or shrink the gap depending on your income, wages paid, and business type. It is left out of the estimate above and is worth modeling directly.
State tax and PTET. Your home state's rate, and a possible pass-through entity tax election, change the all-in number and are not included here.
Social Security accrual. A lower wage base can modestly reduce future Social Security benefits tied to your earnings record.
See it modeled on your real numbers
This tool is a starting point. We'll pin down a defensible salary, layer in your state and PTET, and handle the election end to end.
Disclaimer. This analysis is illustrative only and is based on the simplified assumptions you enter above for the 2026 tax year. It does not constitute tax advice for any specific taxpayer, does not reflect your complete facts and circumstances, and excludes state and local taxes, the Section 199A qualified business income deduction, the additional Medicare tax in some cases, and other items that may materially affect the outcome. Actual results depend on reasonable-compensation determinations, state and local taxation, entity administration, and other factors. Tax law is subject to change. Please consult Jasper Accountancy before acting on any figure shown here.
