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

S-Corp Salary vs DistributionHow to split the income.Profit Margin CalculatorCalculate net profit available.Federal Income Tax CalculatorTotal tax under both structures.

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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