Which structure keeps more of your money?
1099 income, an LLC's profit, and an S-Corp's profit are all taxed the same way on your personal return. What differs is which slice also gets hit by the 15.3% self-employment tax — and that comes down to your structure, your reasonable salary, and your ownership share.
The three structures
Same income, different paperwork
No entity, a default LLC, and an S-Corp election handle the same dollar three different ways.
1099 / Sole Proprietor
No legal separation between you and the business — profit flows straight from Schedule C to your 1040.
LLC
A liability shield, not a tax status. A single-member LLC is taxed exactly like a sole prop by default — a multi-member LLC like a partnership.
S-Corp Election
The same LLC (or a corporation) files Form 2553 to be taxed as an S-Corp. You become a W-2 employee of your own business.
What shows up in the mail
The paper trail for each structure
Every structure comes with its own stack of forms — some you file, some you receive.
1099 / Sole Prop
- 1099-NECSent by each client who paid you $600+ this year.
- Schedule CYour profit-or-loss statement, filed with your 1040.
- Schedule SECalculates the self-employment tax itself.
- Form 1040-ESQuarterly estimated tax vouchers — nobody's withholding for you.
LLC
- Same as 1099Schedule C + Schedule SE, no separate entity return.
- Form 1065The LLC's own information return — no tax paid at this level.
- Schedule K-1One per member, reporting their distributive share.
- Schedule E + SEWhere K-1 income lands on your 1040, and its SE tax if active.
S-Corp Election
- Form 2553The one-time election itself.
- W-2For your reasonable salary, same as any employee.
- Forms 941 & 940Quarterly payroll return and annual FUTA return.
- Form 1120-SThe corporation's own tax return.
- Schedule K-1 (1120-S)Your share of remaining income and distributions.
More than one owner?
Who owns what — and how profit splits
Ownership percentage doesn't just decide how much of the business is yours — it decides how much freedom you have to split profit differently than that percentage. Use the ownership field in the calculator below to see your slice.
Includes 2025 federal income tax brackets and standard deduction, self-employment/payroll tax, and a simplified 20% Section 199A (QBI) deduction — without the income phase-outs or W-2 wage limits that apply at higher income. Ignores state income tax and any income you have outside this business. Tools are simplified — see our disclaimer.
The IRS's real test
What actually counts as "reasonable"?
There's no published formula — reasonable compensation is judged the way a court would: what would this role cost if you had to hire someone else to do it?
Rule of thumb
The rough breakeven zone
Below roughly $40,000–$80,000 in net profit, the payroll setup, the extra return, and the reasonable-salary paperwork usually cost more than the self-employment tax they save. Above it, the gap widens fast — run your own numbers above to find your breakeven point.
Want these numbers handled for you?
Owner-led bookkeeping keeps figures like these current every month.
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