StructureCost2026

LLC or S corp for a general contractor in Alabama (2026)

A general contractor in Alabama with $130,000 of profit pays $37,286 a year in tax and fees as a sole proprietor and $37,968 as an LLC taxed as an S corp, with a $91,000 salary. The S corp starts to pay at about $282,500 of profit.

More settings revenue, salary, filing status, payroll costs, PTET

+$682 a year

more for an LLC taxed as an S corp than a sole proprietorship in Alabama, at these numbers.

Switching from a sole proprietorship to an LLC taxed as an S corp starts to pay at about $282,500 of profit, with the same settings. Setting up costs $200 once in state filing fees. As an LLC taxed as an S corp this uses the state's pass-through entity tax election, which lowers the cost here.

Alabama, 2026: $130,000 profit, single filer

ItemSole propLLC as S corpChange
Self-employment taxirs.gov, 2026 rates$18,368$0−$18,368
Federal income taxirs.gov, 2026 rates$13,142$16,203+$3,061
State income tax, after the PTET creditrevenue.alabama.gov, checked Oct 20, 2026$5,776$4,285−$1,491
Payroll tax on your salaryirs.gov, 2026 rates$0$14,181+$14,181
Payroll service and tax return (estimate)$0$1,800+$1,800
Alabama pass-through entity tax, paid by the company (elected)revenue.alabama.gov, checked Oct 20, 2026$0$1,499+$1,499
Yearly cost$37,286$37,968+$682
What these figures count
  • State income tax, and state taxes on the business itself: franchise, LLC, S corp, gross receipts and excise taxes.
  • Social Security and Medicare on both sides of an owner salary, federal unemployment tax and the state's new-employer rate.
  • The 20% qualified business income deduction with its income limits and the professional-service rule.
  • Yearly report fees, and a cost you can change for payroll and the business tax return.

Many S corp calculators leave out state taxes and the QBI deduction, which can make the election look better than it is.

At three profit levels

ProfitSalary usedSole propLLCLLC as S corpC corp
$90,000$63,000$23,233$23,233$23,982$27,930
$130,000$91,000$37,286$37,371$37,968$43,839
$180,000$115,000$55,157$55,272$54,055$63,875

Salary is the BLS median for the job ($114,990), capped at 70% of profit. Revenue 6.2 times profit. Single filer.

What matters for general contractors

What the switch takes in Alabama

  1. File the Certificate of Formation (Domestic LLC) with the state: $200 (fee).
  2. Get an EIN from the IRS (free, online) and open a business bank account in the new name.
  3. Check the business can elect: no more than 100 shareholders, all of them US citizens or residents (no nonresident alien owners), and one class of stock. IRS
  4. File IRS Form 2553 to elect S corp tax treatment, within 2 months and 15 days of the start of the tax year it should apply to. See how the S corp election works.
  5. Register with Alabama as an employer and run payroll for your own salary: federal Forms 941 each quarter, Form 940 and a W-2 each year. New employers pay Alabama unemployment tax at 2.7% on the first $8,000 of wages. workforce.alabama.gov See what payroll costs.
  6. Federal return each year: Form 1120-S, due March 15, plus your own Form 1040.
  7. State upkeep each year: no yearly report fee, due none. New for you: Alabama Business Privilege Tax.

Questions

Should a general contractor in Alabama form an S corp?

At $130,000 of profit, not on these figures: the S corp costs $682 a year more than staying a sole proprietor.

Is an LLC worth it for a general contractor in Alabama?

For tax, a single-member LLC changes nothing: $37,371 a year against $37,286, the difference being Alabama's LLC fees and LLC taxes. It separates business liability and is the base for an S corp election.

More

Other professions in Alabama
Other states