BusinessFebruary 25, 20266 min

LLC vs S-Corp: which to choose for your business

At what income level is S-Corp better than LLC? We compare tax burden, administrative requirements, and when to switch structures.

LLC vs S-Corp: what's the difference?

Both protect personal assets from business debts, but they're taxed differently.

By default, a single-member LLC is taxed as a **sole proprietorship** — all income flows through Schedule C on your personal return.

**Taxes:** all net income is subject to self-employment tax (15.3%) + income tax.

An S-Corp lets you split income between **salary** (subject to SE tax) and **distributions** (not subject to SE tax).

Example at $120,000 of income:

LLC: the entire $120,000 is subject to 15.3% SE tax = $18,360

S-Corp: $60,000 salary + $60,000 distributions, SE tax only on salary = $9,180

**Savings: $9,180**

Rule of thumb: **at $80,000+ of net income** an S-Corp starts paying for itself. Consider:

Accounting fees for the corporate return ($500–$1,500/year)

Payroll taxes and administrative overhead

The requirement to pay yourself a "reasonable salary"

If you earn $80K+ as a freelancer or business owner — an S-Corp can save you $5,000–$15,000 per year. But it has to be set up correctly.

Want to calculate the benefit for your situation? Book a consultation.

Kateryna Dzhevaga

Tax Expert