Arc & Ledger Tax Tools

Compare LLC vs S-Corp

compare_llc_scorp

Read-only

Use this when a self-employed user or single-member LLC owner asks whether an S-Corp election would save them money. Shows a side-by-side of self-employment tax vs salary-plus-distribution, payroll and compliance costs, California franchise taxes, and the break-even zone.

Input Schema

TableJSON Schema

Name	Required	Description
`state`	No	US state, 2-letter or name. Defaults to CA. Only California franchise taxes are modeled (the SMLLC gross-receipts fee is excluded; see caveats).
`w2_wages_usd`	No	W-2 wages from other employers this year (for example a hospital job). They use up the Social Security wage base and the Additional Medicare threshold, which decides whether an S-corp salary saves or costs payroll tax.
`filing_status`	No	Filing status for the Additional Medicare Tax threshold. Defaults to single.
`spouse_wages_usd`	No	Spouse W-2 wages, used only with mfj (the Additional Medicare threshold is household-level for joint filers).
`currently_has_llc`	No	Whether the business already operates as an LLC today. Defaults to true. A plain sole proprietorship (no LLC) does not owe the California $800 franchise tax.
`licensed_profession`	No	Set to physician (or other_ca_licensed for another California licensed profession under Corp. Code 13401) when the work is a licensed professional service. In California such a practice cannot use an LLC, so the comparison becomes sole proprietor vs professional corporation with an S election. Defaults to none.
`expected_net_profit_usd`	Yes	Expected annual net profit (revenue minus business expenses), before any owner salary.
`owner_salary_estimate_usd`	No	A reasonable W-2 salary you would pay yourself as an S-corp owner. If omitted, the midpoint of the reasonable-compensation starting range for an owner-services business (about half of profit) illustrates the mechanic. That default is an illustration only - there is no IRS safe harbor at any percentage; use estimate_reasonable_comp for a starting range.

Output Schema

TableJSON Schema

Name	Required	Description
`relay`	Yes	Instruction to the calling assistant: relay figures and dates verbatim (identical on every response).
`next_step`	Yes	A single review link appropriate to this server surface.
`disclaimer`	Yes	General-information disclaimer (identical on every response).
`source_url`	Yes	The arcandledger.com page that backs this answer.
`server_version`	No	Server release that produced this response (matches GET /version).

Schema Changelog

Changes observed during successful MCP inspections.

Changed4 schema fields changedOct 13, 2026

addedInput schema / properties / filing_status

Added value: +{
+  "description": "Filing status for the Additional Medicare Tax threshold. Defaults to single.",
+  "enum": [
+    "single",
+    "mfj"
+  ],
+  "type": "string"
+}

addedInput schema / properties / licensed_profession

Added value: +{
+  "description": "Set to physician (or other_ca_licensed for another California licensed profession under Corp. Code 13401) when the work is a licensed professional service. In California such a practice cannot use an LLC, so the comparison becomes sole proprietor vs professional corporation with an S election. Defaults to none.",
+  "enum": [
+    "none",
+    "physician",
+    "other_ca_licensed"
+  ],
+  "type": "string"
+}

addedInput schema / properties / spouse_wages_usd

Added value: +{
+  "description": "Spouse W-2 wages, used only with mfj (the Additional Medicare threshold is household-level for joint filers).",
+  "type": "number"
+}

addedInput schema / properties / w2_wages_usd

Added value: +{
+  "description": "W-2 wages from other employers this year (for example a hospital job). They use up the Social Security wage base and the Additional Medicare threshold, which decides whether an S-corp salary saves or costs payroll tax.",
+  "type": "number"
+}

Changed1 schema field changedJul 26, 2026

changedOutput schema / properties / next_step / description

Previous value: -"A single human handoff to the firm."New value: +"A single review link appropriate to this server surface."

Changed3 schema fields changedJul 13, 2026

changedInput schema / properties / owner_salary_estimate_usd / description

Previous value: -"A reasonable W-2 salary you would pay yourself as an S-corp owner. If omitted, a neutral 50% split is used to illustrate the mechanic."New value: +"A reasonable W-2 salary you would pay yourself as an S-corp owner. If omitted, the midpoint of the reasonable-compensation starting range for an owner-services business (about half of profit) illustrates the mechanic. That default is an illustration only - there is no IRS safe harbor at any percentage; use estimate_reasonable_comp for a starting range."

addedOutput schema / properties / relay

Added value: +{
+  "description": "Instruction to the calling assistant: relay figures and dates verbatim (identical on every response).",
+  "type": "string"
+}

changedOutput schema / required

Previous value: -[
-  "disclaimer",
-  "source_url",
-  "next_step"
-]New value: +[
+  "disclaimer",
+  "relay",
+  "source_url",
+  "next_step"
+]

Changed1 schema field changedJul 12, 2026

changedOutput schema / (root)

Previous value: -nullNew value: +{
+  "additionalProperties": true,
+  "properties": {
+    "disclaimer": {
+      "description": "General-information disclaimer (identical on every response).",
+      "type": "string"
+    },
+    "next_step": {
+      "description": "A single human handoff to the firm.",
+      "properties": {
+        "label": {
+          "type": "string"
+        },
+        "url": {
+          "type": "string"
+        }
+      },
+      "required": [
+        "label",
+        "url"
+      ],
+      "type": "object"
+    },
+    "server_version": {
+      "description": "Server release that produced this response (matches GET /version).",
+      "type": "string"
+    },
+    "source_url": {
+      "description": "The arcandledger.com page that backs this answer.",
+      "type": "string"
+    }
+  },
+  "required": [
+    "disclaimer",
+    "source_url",
+    "next_step"
+  ],
+  "type": "object"
+}

First observedJul 8, 2026

TDQS

A4.2/5.0

Behavior4/5

Does the description disclose side effects, auth requirements, rate limits, or destructive behavior?

Annotations already declare readOnlyHint=true, destructiveHint=false, and openWorldHint=false, so safety is covered. The description adds real context beyond that: the modeling scope (California-only franchise taxes), the shape of the output (side-by-side plus break-even zone), and the caveat that defaults are illustrative. It stops short of 5 only because auth/permission and computational-limit context is absent.

Agents need to know what a tool does to the world before calling it. Descriptions should go beyond structured annotations to explain consequences.

Conciseness5/5

Is the description appropriately sized, front-loaded, and free of redundancy?

Two sentences, front-loaded with the when-to-use trigger followed by what the output contains. Every clause earns its place; no filler or restating of the title.

Shorter descriptions cost fewer tokens and are easier for agents to parse. Every sentence should earn its place.

Completeness4/5

Given the tool's complexity, does the description cover enough for an agent to succeed on first attempt?

For a multi-parameter tax comparison with an output schema and full annotation coverage, the description is nearly complete: it explains the decision it supports and the comparison dimensions. A minor gap is that the California-centric limitation is only implied here and spelled out in the state parameter, not the description.

Complex tools with many parameters or behaviors need more documentation. Simple tools need less. This dimension scales expectations accordingly.

Parameters3/5

Does the description clarify parameter syntax, constraints, interactions, or defaults beyond what the schema provides?

Schema coverage is 100% across 8 parameters, so the schema itself documents every field, including the CA-only caveat and the reasonable-compensation illustration. The description adds no parameter-level syntax or semantics beyond noting that California franchise taxes are modeled. Baseline 3 is correct.

Input schemas describe structure but not intent. Descriptions should explain non-obvious parameter relationships and valid value ranges.

Purpose5/5

Does the description clearly state what the tool does and how it differs from similar tools?

States a specific verb (compare) and resource (LLC vs S-Corp election) and enumerates exactly what the comparison contains: self-employment tax vs salary-plus-distribution, payroll/compliance costs, California franchise taxes, and the break-even zone. An agent can distinguish it from siblings like compare_formation_states or estimate_quarterly_taxes without opening a schema.

Agents choose between tools based on descriptions. A clear purpose with a specific verb and resource helps agents select the right tool.

Usage Guidelines4/5

Does the description explain when to use this tool, when not to, or what alternatives exist?

Gives a clear triggering situation: a self-employed user or single-member LLC owner asking whether an S-Corp election would save money. However, it names no exclusions or explicit alternatives (e.g., where estimate_reasonable_comp or compare_formation_states would be the better pick), which keeps it short of a 5.

Agents often have multiple tools that could apply. Explicit usage guidance like "use X instead of Y when Z" prevents misuse.

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