LLC vs S-Corp — Which Saves More on Self-Employment Tax?

LLC vs S-Corp

LLC vs S-Corp — Which Saves More on Self-Employment Tax?

An LLC pays self-employment tax on 100% of profit. An S-Corp pays SE tax only on the “reasonable salary” portion. The crossover is usually $50K net profit.

Verdict

Stay LLC up to ~$50K net profit. Elect S-Corp above $50-80K when SE-tax savings beat the ~$1,500/year compliance cost (payroll, separate returns, RA). Above $200K, S-Corp savings can hit $15K+ per year.

Side-by-side comparison

 LLC (default)S-Corp election
SE tax on $100K profit15.3% on full $100K = $15,30015.3% on $50K salary = $7,650
Federal income taxSameSame
Payroll requirementsNoneRun W-2 for owner
Annual compliance cost~$300~$1,500
IRS audit profileLowHigher (salary reasonableness)
Crossover net profitUnder $50K$50K+

Who should pick LLC (default)

Solo freelancers under $50K net profit. Side-hustlers. Anyone who values simplicity and doesn’t want to run payroll.

Who should pick S-Corp election

Profitable consultants and agencies over $80K net profit. Anyone earning $100K+ as 1099 willing to document a “reasonable salary.” Owners with cash flow to take quarterly distributions.

Related tools

Disclaimer. Comparison numbers depend on your tax bracket, state, and time horizon. Educational only — not personalized financial advice. See our Financial Disclaimer.

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