StructureCost2026

Sole proprietorship vs S corp in District of Columbia: which costs less (2026)

At $100,000 profit in District of Columbia, a sole proprietorship costs $30,600 a year in tax and fees and an LLC taxed as an S corp costs $26,594. An LLC taxed as an S corp starts to cost less from about $45,000 of profit.

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

$4,006 a year

saved by switching from a sole proprietorship to an LLC taxed as an S corp in District of Columbia, at these numbers.

Switching from a sole proprietorship to an LLC taxed as an S corp starts to pay at about $45,000 of profit, with the same settings. Setting up costs $99 once in state filing fees.

District of Columbia, 2026: $100,000 profit, single filer

ItemSole propLLC as S corpChange
DC unincorporated business franchise taxotr.cfo.dc.gov, checked Oct 23, 2026$5,363$0−$5,363
Self-employment taxirs.gov, 2026 rates$13,372$0−$13,372
Federal income taxirs.gov, 2026 rates$7,358$8,750+$1,392
State income taxotr.cfo.dc.gov, checked Oct 23, 2026$4,507$4,672+$165
Biennial Reportdlcp.dc.gov, checked Oct 23, 2026$0$150+$150
Payroll tax on your salaryirs.gov, 2026 rates$0$6,723+$6,723
Payroll service and tax return (estimate)$0$1,800+$1,800
DC corporation franchise tax on S corporationsotr.cfo.dc.gov, checked Oct 23, 2026$0$4,499+$4,499
Yearly cost$30,600$26,594−$4,006
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.

Yearly cost at each profit level

ProfitSole propLLC as S corpDifference
$30,000$6,649$7,638+$989
$50,000$13,120$12,569−$551
$75,000$21,357$18,263−$3,094
$100,000$30,600$26,594−$4,006
$150,000$51,572$45,023−$6,549
$200,000$72,981$64,244−$8,737
$300,000$117,007$103,440−$13,567

Federal and District of Columbia tax and fees, single filer, revenue 1.5 times profit, default salary for S and C corps. "Difference" is LLC taxed as an S corp minus Sole proprietorship.

What the switch takes in District of Columbia

  1. File the Articles of Organization (Form DLC-1) with the state: $99 (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. District of Columbia does not follow the S election: the state taxes the company as a corporation, which the figures above include.
  6. Register with District of Columbia 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 District of Columbia unemployment tax at 2.7% on the first $9,000 of wages. does.dc.gov See what payroll costs.
  7. Federal return each year: Form 1120-S, due March 15, plus your own Form 1040.
  8. State upkeep each year: Biennial Report, $300 every two years, due April 1 every second year, first due April 1 of the year after formation. New for you: DC corporation franchise tax on S corporations.

What changes between the two

A sole proprietor pays self-employment tax of 15.3% on 92.35% of all profit, up to the Social Security wage base of $184,500. Taxed as an S corp, the business pays you a salary, and only the salary carries Social Security and Medicare tax. The rest comes out as a distribution.

The election adds costs: a payroll service, a separate business tax return (Form 1120-S), federal and District of Columbia unemployment tax on the salary, and DC corporation franchise tax on S corporations. The calculator counts $1,800 a year for payroll and the return. The IRS expects a reasonable salary for the work, so it cannot be set near zero.

A sole proprietor cannot elect S corp status alone: forming an LLC first ($99 in District of Columbia) and electing on Form 2553 is the usual route.

Questions

At what profit does an S corp election pay in District of Columbia?

About $45,000 a year, on the default salary (40% of profit, at least $30,000 where profit allows) and $1,800 of yearly payroll and return costs. Change the salary in the calculator to see how the point moves.

How much does it save at $100,000 in District of Columbia?

$4,006 a year: Sole proprietorship $30,600, LLC taxed as an S corp $26,594.

Does District of Columbia recognise the S corp election?

No. District of Columbia taxes S corporations as corporations, and the calculator includes that.

More for District of Columbia

Common cases in District of Columbia

Other states