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.
LLC (Single-Member)
By default, a single-member LLC is taxed as a sole proprietorship — all income flows through Schedule C on your personal return.
Taxes: 15.3% self-employment tax on 92.35% of net profit + income tax.
S-Corp
An S-Corp election lets you split profit into a salary for the owner (subject to FICA — the same 15.3%) and distributions (no FICA and no SE tax).
Example: $120,000 of profit, single, tax year 2026, federal taxes only.
| Default LLC | LLC with S-Corp election ($60,000 salary) | |
|---|---|---|
| SE tax / FICA | ≈ $16,955 (15.3% × 92.35% of profit) | $9,180 (15.3% × $60,000) + FUTA $42 |
| Federal income tax | ≈ $11,506 | ≈ $13,622 |
| Payroll and Form 1120-S | — | ≈ $2,800 |
| Total | ≈ $28,462 | ≈ $25,644 |
The saving is about $2,800 a year — not the $7,775 you get by comparing SE tax with FICA alone. Income tax is higher with the S-Corp: the 20% QBI deduction applies only to the K-1 profit (salary is not QBI), and there is no deduction for half of SE tax.
When should you switch to an S-Corp?
Run your own numbers. Rules of thumb:
- Below $60–80K of profit, payroll and 1120-S costs usually eat the benefit.
- The higher your profit relative to a market salary for your work, the bigger the saving: at $150K of profit with a $60K salary it is about $6,600 a year (see the calculation on the S-Corp election page).
- The salary must be reasonable — in line with the market for your work and region. The IRS can recharacterize a salary that is too low.
- State taxes are separate: California, for example, charges S-Corps a 1.5% franchise tax on net income (minimum $800).
- Only US citizens and residents can be S-Corp shareholders: a nonresident alien cannot use an S-Corp.
Takeaway
An S-Corp election is not for everyone. At $100–150K of profit the real saving is roughly $2,000–7,000 a year, not $15,000. It grows with profit and depends on a reasonable salary, your state and the cost of running payroll.
Want to calculate the benefit for your situation? Book a consultation.
