LLC vs S-Corp: Which Is Right for Your Business

Trying to decide between an LLC and an S-Corp election? Here's a general, plain-English comparison of how they differ.

They're not really the same kind of thing

An LLC is a legal entity type formed at the state level. An S-Corp isn't a separate entity — it's a tax election that an LLC (or a corporation) can make with the IRS. So the real comparison is usually 'LLC taxed as default pass-through' vs. 'LLC taxed as an S-Corp.'

How the tax treatment generally differs

By default, LLC profits pass through to the owner's personal tax return and are subject to self-employment tax on the full amount. With an S-Corp election, the owner becomes an employee, pays themselves a reasonable salary subject to payroll tax, and remaining profits may be distributed without self-employment tax — potentially reducing the overall tax bill once profits are high enough.

S-Corp election adds real complexity

Electing S-Corp status generally means running payroll, filing additional tax forms, and following stricter formalities. For a business with modest profit, the added complexity and cost can outweigh the tax savings.

A general rule of thumb

Many businesses start as a default LLC and consider an S-Corp election once profits reach a level where the self-employment tax savings clearly outweigh the added payroll and compliance costs — often discussed with an accountant on a case-by-case basis.

This is a numbers question, not just a legal one

Because the S-Corp decision is largely about tax math specific to your income and expenses, this is a question best run past a licensed accountant, not just decided based on general guidance like this.

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