LLC vs S-Corp: Which is Right for You?

Choosing the Right Structure Could Save You Thousands

If you’re a small business owner, freelancer, or independent contractor, the structure you choose for your business isn’t just paperwork—it’s a powerful tax strategy.

The two most common choices are the LLC (Limited Liability Company) and the S-Corp (S Corporation). Both offer liability protection, but they have very different tax implications. Let’s break it down.

What is an LLC?

An LLC is one of the easiest and most flexible business entities to set up. It protects your personal assets from business debts or lawsuits and has “pass-through” taxation—meaning the business income is taxed on your personal return.

Pros:

• Easy to form and maintain

• Fewer formalities and record-keeping requirements

• Pass-through taxation

• Flexibility in managing the business

Cons:

• Subject to full self-employment taxes (15.3%) on all profits

• Less advantageous for scaling businesses with high profits

What is an S-Corp?

An S-Corp isn’t a business entity, it’s a tax election you can make once your business is formed (as an LLC or corporation). The biggest benefit? You can pay yourself a salary and take the rest of the profit as a distribution, which is not subject to self-employment tax.

Pros:

• Potential for big tax savings on self-employment taxes

• Still offers liability protection

• Can enhance credibility with banks and partners

Cons:

• Must pay yourself a “reasonable salary”

• Requires payroll setup and quarterly filings

• More IRS scrutiny and compliance responsibilities

Which One Should You Choose?

• Just starting out? An LLC might be enough to keep things simple and safe.

• Earning $40K–$100K+ in profit? It may be time to switch to an S-Corp and save on taxes.

A common strategy: Start as an LLC, then elect S-Corp status later when your income justifies the added complexity.

Real Talk: Jonathan’s Story

Jonathan started his tax business in his apartment—mouse traps in one hand, laptop in the other. As his business grew, his accountant suggested switching to an S-Corp. That one move saved him over $8,000 in taxes in the first year. Now he uses those savings to reinvest and scale.

Don't DIY This Decision

Choosing the wrong entity can cost you more than it saves. Let’s look at your income, goals, and long-term vision to pick the best structure and build a strategy around it.