It's one of the most common questions small business owners ask — and the internet is full of confident, oversimplified answers. Here's the plain-language version, plus how to know which fits your situation.
Talk it through with us — freeFirst, a clarification that trips everyone up: "LLC" and "S-corp" aren't really the same kind of thing. An LLC is a legal business structure. An S-corp is a tax election — a way of being taxed that an LLC (or a corporation) can choose. So the real question usually isn't "LLC or S-corp," it's "should my LLC be taxed as an S-corp?"
Why anyone bothers: by default, all the profit from a normal LLC is subject to self-employment tax. An S-corp election lets you split your income into a reasonable salary (which is taxed for Social Security and Medicare) and remaining profit (which generally isn't). At a high enough income, that split can save real money. Below that point, the extra cost and paperwork of an S-corp can outweigh the savings.
| LLC (default) | LLC taxed as S-corp | |
|---|---|---|
| What it is | Legal structure, default taxation | Same LLC, electing S-corp tax treatment |
| Self-employment tax | On all net profit | Only on your "reasonable salary" |
| Payroll required? | No | Yes — you must run payroll for yourself |
| Paperwork | Simpler | More: payroll filings, separate return |
| Best when | Lower or variable profit | Consistent profit above a certain level |
Your profit is modest or unpredictable, you're just starting out, or you'd rather keep things simple while the business finds its feet.
Your profit is consistently solid, you can pay yourself a reasonable salary, and the self-employment tax savings clearly exceed the extra costs.
No. It only helps above a certain profit level, because it adds payroll and filing costs. Below that point an LLC is usually the smarter, simpler choice. The right answer depends on your numbers.
Yes. Many businesses start as a standard LLC and elect S-corp treatment once profits justify it. You don't have to decide forever on day one.
If you elect S-corp treatment, the IRS requires you to pay yourself a reasonable wage for your work before taking remaining profit as distributions. Setting it too low is a known audit trigger — we help you get it right.
Liability protection comes from the LLC (or corporation) structure itself, not the tax election. The S-corp choice is about taxes, not legal protection.
Run the numbers for your specific income, then weigh the savings against the added cost and effort. We'll do that calculation with you in a free consultation.
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