Business Tax Calculator
Estimate the 2026 federal tax on a small business's profit by entity type — sole proprietorship, partnership, S corporation or C corporation — including self-employment or payroll tax, the owner's income tax and the 20% QBI deduction. Use it to compare entity choices or plan quarterly payments.
Last updated: September 2026
Formula below · 1 source (IRS) · Updated Sep 2026
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About this calculator
Net income = grossRevenue − businessExpenses − depreciation. C corporation: 21% flat federal corporate tax on net income (corporate level only; profits later paid out as dividends are taxed again on the owner's return, which is not included). Sole proprietorship and partnership (a general partner whose whole share is self-employment income): self-employment tax = 92.35% of net income × 12.4% Social Security (up to the 2026 wage base of $184,500) + 2.9% Medicare; half of it is deducted to get AGI. S corporation: the owner's W-2 salary bears Social Security and Medicare tax (7.65% employee plus 7.65% employer, Social Security capped at $184,500); the employer half is a business expense, and the remaining profit passes through on the K-1 free of payroll tax. The owner's income tax is then figured with the 2026 single brackets (10% to $12,400, 12% to $50,400, 22% to $105,700, 24% to $201,775, 32% to $256,225, 35% to $640,600, 37% above) after the $16,100 standard deduction and, if selected, the Section 199A QBI deduction: 20% of qualified business income (net profit minus the deductible half of SE tax, or for an S corporation the K-1 profit, not the salary), limited to 20% of taxable income before QBI. Result = SE or payroll tax + owner income tax (or the corporate tax). Assumptions: the owner files single, has no other income and takes the standard deduction; taxable income stays under the 2026 QBI threshold ($201,750 single) above which W-2-wage and specified-service limits can shrink the deduction; no state tax, FUTA/SUTA, credits, or retirement contributions. The IRS requires an S-corp owner's salary to be reasonable for the work done; the salary field is used only for S corporations.
How to use
Suppose a sole proprietor has $120,000 gross revenue, $40,000 in expenses, $5,000 depreciation, and claims the QBI deduction. Net income = $120,000 − $40,000 − $5,000 = $75,000. SE tax = $75,000 × 0.9235 × 15.3% = $10,597.16; half of it ($5,298.58) is deductible, so AGI = $69,701.42. Taxable income before QBI = $69,701.42 − $16,100 = $53,601.42. QBI deduction = the lesser of 20% × $69,701.42 = $13,940.28 and 20% × $53,601.42 = $10,720.28, so $10,720.28. Taxable income = $42,881.14; income tax = $1,240 + 12% × $30,481.14 = $4,897.74. Total = $10,597.16 + $4,897.74 = $15,494.90. The same business as an S corporation paying the owner a $40,000 salary: payroll tax = 2 × 7.65% × $40,000 = $6,120; K-1 profit = $75,000 − $40,000 − $3,060 employer share = $31,940; taxable income = $71,940 − $16,100 − QBI of $6,388 = $49,452; income tax = $5,686.24; total = $11,806.24. As a C corporation the corporate tax is $75,000 × 21% = $15,750.
Frequently asked questions
How does the Section 199A QBI deduction reduce my small business taxes?
The Section 199A deduction lets owners of pass-through businesses (sole proprietorships, partnerships and S corporations) deduct up to 20% of qualified business income. It is limited to 20% of taxable income before the deduction, and for a sole proprietor the QBI is the net profit minus the deductible half of self-employment tax (and minus self-employed health insurance and retirement contributions, which this calculator does not model). An S-corp owner's salary is not QBI; only the K-1 profit is. For 2026, taxpayers with taxable income above $201,750 single ($403,500 joint) can see the deduction reduced by W-2 wage and property limits, and owners of specified service businesses (law, medicine, consulting and similar) lose it gradually above those thresholds. C corporations are not eligible.
What is self-employment tax and why do sole proprietors pay more than employees?
Self-employment tax is the sole proprietor's equivalent of payroll taxes — 15.3% covering Social Security (12.4%) and Medicare (2.9%). Employees only pay half (7.65%) because their employer covers the other half, but self-employed individuals pay both shares. It is calculated on 92.35% of net self-employment income to account for the employer-equivalent deduction. The IRS does allow you to deduct half of self-employment tax from gross income when calculating your income tax, partially offsetting the burden.
When does it make financial sense to switch from a sole proprietorship to an S-corp for tax purposes?
An S corporation can reduce payroll-type taxes because only the owner's salary bears Social Security and Medicare tax; the rest of the profit passes through without them. In the example above, a $75,000 profit owes $10,597 of self-employment tax as a sole proprietorship but $6,120 of payroll tax on a $40,000 S-corp salary. The salary must be reasonable compensation for the work performed, and the S corporation adds costs: payroll processing, unemployment taxes, a separate Form 1120-S return and state fees, often $1,500–$3,000 a year or more. Many advisors start modeling the switch once profit is consistently above about $50,000–$80,000. A tax professional can model the break-even for your state.