S-Corp vs. LLC: What’s the Difference, and Which One Should You Choose?
Thinking about setting up an LLC or switching to an S-Corp? You’re not alone. Many business owners hit a point where they wonder if their current setup is still the smartest move—especially when it comes to taxes.
Here’s a breakdown of what each option really means, and how to know which one fits your business best.
First, What’s an LLC?
An LLC (Limited Liability Company) is a legal structure that protects your personal assets if your business gets sued or goes into debt. It’s flexible, easy to set up, and a popular choice for small businesses.
By default, an LLC is taxed as a sole proprietorship (if one owner) or a partnership (if multiple owners). That means the business income passes through to your personal tax return—and you pay self-employment tax on all of it.
What’s an S-Corp?
An S-Corp is not a type of business entity. It’s a tax election you can make once you’ve formed an LLC or a corporation. Choosing to be taxed as an S-Corp can save money in the right situations.
With an S-Corp:
You still get liability protection through your LLC
You pay yourself a reasonable salary, and the rest of your profit passes through to your personal return—without self-employment tax
The catch? You have to run payroll, file additional IRS forms, and follow a few more rules.
So… Which One Is Better?
It depends on your profit, goals, and how comfortable you are with compliance. Here’s a quick cheat sheet:
| LLC (Default Tax Status) | LLC with S-Corp Election |
|---|---|
| Simple setup, minimal paperwork | More forms, but potential tax savings |
| Self-employment tax on full profit | Self-employment tax only on your salary |
| No payroll required | Payroll required |
| Great for side hustles or early stages | Better for businesses earning $75K+ in net profit |
Here’s How We Help
If you're not sure where you fall, don’t guess. We walk clients through:
Income and expense analysis
Payroll planning and setup
IRS election timing and filing
Ongoing support so you stay compliant
Takeaway:
Both LLCs and S-Corps offer protection and flexibility—but only one might save you thousands in taxes. The right choice depends on your numbers and your goals.
Want to talk through it? Let’s run the numbers together. Use the Contact Us button at the top of the page to get started!
