How to Choose Between S‑Corp vs LLC for Your Business

Your business structure affects your taxes,liability, and financial flexibility—so choosing between an LLC or S-Corp haslong-term implications.

LLC Structure

• Simple formation and flexible ownershipstructure.
• Default pass-through taxation.
• Self-employment tax applies to all net income.
• Easy to convert to S-Corp.

S-Corp Structure

• Pass-through taxation with salary +distributions.
• Net profits above salary are taxed as distributions.
• More IRS reporting requirements.

Key Factors to Compare

LLC:

• Tax: Self‑employment tax on all income
• Complexity: Lower
• Best for: Freelancers and small teams

S‑Corp:

• Tax: Payroll tax on salary; distributions saved from payroll taxes
• Complexity: Higher
• Best for: Profitable businesses seeking tax optimization

When S‑Corp May Be Worth It

If your business nets over $60K, electingS‑Corp can reduce taxes on distributions—after paying a reasonable salary.

Action Steps

1. Estimate expected profits.
2. Compare self-employment tax vs. salary/distribution split.
3. Consult a CPA.
4. Consider admin burden vs. savings.