The 20% QBI deduction is permanent and the Social Security wage base hit $184,500 — the two numbers that decide whether an S election pays. The honest decision grid, including the case where staying a plain LLC wins.
“Should I become an S corp?” has been the most-asked question in small-business tax for years, and the honest answer has always been “it depends on numbers that keep changing.” In 2026 two of those numbers finally sat still: the 20% QBI deduction is now permanent, and the Social Security wage base reached $184,500. Here’s the current math, without the YouTube-guru gloss.
An S corp is not a type of company — it’s a tax election. Your LLC keeps being an LLC; electing S status only changes how the IRS taxes it. So the real question is: LLC taxed as sole proprietorship/partnership vs. LLC taxed as an S corp.
A default single-member LLC pays 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare) on essentially all profit up to the $184,500 wage base, then 2.9% Medicare above it (plus 0.9% extra above $200,000/$250,000). An S corp owner instead splits income into:
The savings live in that second bucket. Example at $150,000 of profit with a defensible $75,000 salary: roughly $75,000 of distributions avoid the 15.3%, saving in the neighborhood of $10,000–11,000 a year before the costs below.
| Cost | Typical range |
|---|---|
| Payroll service + filings (941s, W-2, state unemployment) | $500–$1,500/yr |
| Separate business return (Form 1120-S) | $800–$2,500/yr |
| Late-filing exposure (1120-S due March 15) | $255/owner/month if you miss it |
| Estimated-tax discipline | Quarterly, on you |
| Reduced Social Security earnings record | Lower salary now = slightly lower benefit later |
The 20% qualified business income deduction interacts with the salary split in both directions, and this is where cheap advice goes wrong:
The IRS’s enforcement lever is the salary. $20,000 of salary on $300,000 of profit is an audit invitation; the standard is what you’d pay someone else to do your job — supported by industry data, your role, and your hours. Set it deliberately, document how, and revisit it when profit changes. A defensible salary is also, per the QBI rules above, often working for you at higher incomes.
The election (Form 2553) for a calendar-year business is generally due by March 15 of the year it takes effect, though late-election relief is often available when you’ve behaved like an S corp all along. The better move is to run the numbers this fall and start clean on January 1 — payroll from week one beats retroactive cleanup every time.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
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