Entity tax drag compare — EA Part 2 Widgets

What this does

Compare the estimated tax drag on the same business profit across four structures. Stacked bars and a line chart show employment/SE tax vs entity tax vs owner-level tax. This is a teaching model, not tax software.

Assumptions are shown in yellow below — change wages and dividend policy to see S vs C flip.

Rule · what “drag” means Total modeled federal tax = SE/FICA + entity-level tax (C corp 21%) + owner income tax on wages / flow-through / dividends. Lowest bar is not always the right legal choice — elections and liability matter too.

Shared facts

One profit figure feeds all four entity columns.

Business ordinary profit (before owner pay) S corp — reasonable W-2 wages Must be “reasonable” for services — exam hotspot C corp — % of after-tax earnings paid as dividend 100% distributed (double-tax case) Owner ordinary bracket (flow-through / wages) Qualified dividend / LTCG rate (C corp dividends)

Watch out · bold assumptions (teaching only): SE tax ≈ 15.3% on 92.35% of SP/partnership ordinary (ignore OASDI wage-base cap for simplicity). Employee FICA on S/C wages ≈ 15.3% combined employer+employee teaching load on wages (simplified). C corp entity rate = 21% flat. No QBI (§199A), no state tax, no NIIT, no basis/AAA limits. Partnership treated like sole prop for SE on this ordinary profit (general partner teaching case).

Also see Entity choice & defaults for classification elections (Form 8832 / 2553 timing). This page is about tax-drag shape only.

Who pays what?

Big numbers first — total estimated federal tax drag by structure.

Lowest drag in this scenario

—

Stacked tax composition

Each column is one entity. Colors = SE/FICA · entity-level · owner income tax on flow-through / wages / dividends.

Tax drag by entity · stacked bars (2D)

Take-home after modeled tax (same profit in)

How drag grows with income

Line chart across profit levels — same wages % / dividend policy. See where C-corp double tax and SE tax diverge.

Total tax by entity · across profit levels (2D lines)

Safe / correct intuition S corp savings come from residual distributions escaping FICA — wages still pay employment tax. Flip S wages up and the S advantage shrinks.

Exam trap: S corp does not eliminate employment tax on wages — only residual distributions escape FICA (if wages are reasonable). C corp faces entity tax plus tax on dividends (double tax) when earnings are distributed. Flow-through (SP / partnership) hits SE on ordinary business income for owners who are SE-liable. Defaults and elections live on the entity-choice widget — this page is about tax drag shape, not Form 8832/2553 timing.

← Entity choice flowchart All widgets Diagnostic home

Study tool only — not official IRS software. Simplified 2025 teaching rates (21% C corp, SE/FICA sketch). No QBI, state, NIIT, or wage-base nuances. Confirm against current IRS pubs before the exam.