LLC vs. S-Corp: Which Saves You More in Taxes?

01What an LLC Actually Is

An LLC is a legal structure, not a tax status. By default a single-member LLC is taxed as a sole proprietorship, which means all profit is subject to self-employment tax. The liability protection is real; the tax savings, by default, are not.

02What Changes With an S-Corp Election

An LLC can elect to be taxed as an S-Corp. You then pay yourself a reasonable salary (subject to payroll tax) and take remaining profit as distributions, which are not subject to self-employment tax. That split is where the savings come from.

03The Break-Even Point

The extra payroll filings and bookkeeping an S-Corp requires cost money, so the election only pays off above a certain profit level — often around the point where net profit clears roughly $40,000–$50,000, though it varies. See the IRS S-Corp overview for the rules.

04The Reasonable Salary Rule

The IRS requires S-Corp owners to pay themselves a reasonable salary before taking distributions. Setting it too low to dodge payroll tax is a common audit trigger.

05How to Decide

Run the numbers on your actual profit, factor in the added compliance cost, and revisit the decision yearly as income grows. This is exactly the kind of calculation worth doing with a professional.

This article is general information, not individualized tax, legal, or financial advice. Every situation is different — reach out and we'll look at yours directly.