This is the question we get more than any other, from creators, contractors, agencies, and shop owners alike. The short version: an LLC is a legal structure, an S-corp is a tax election, and the election only pays off once your profit is high enough to cover the extra work it creates.
A legal structure at the state level that separates you from the business.
A tax election you make with the IRS. Your LLC or corporation keeps its legal form and is taxed differently.
All net profit flows to your personal return and is subject to 15.3% self-employment tax.
You pay yourself a reasonable salary through payroll. Only the salary carries payroll tax. Remaining profit is a distribution.
State filing, annual report, and a Schedule C or partnership return.
Payroll registration, quarterly payroll filings, W-2s, and a separate 1120-S return every year.
Usually just your state fee and bookkeeping.
Payroll processing, a separate business return, and tighter bookkeeping. Often $1,500 to $4,000 a year in added cost.
New businesses, side income, and anyone with profit under roughly $60,000.
Consistent profit above roughly $60,000 to $80,000 where the tax savings clear the added overhead.
Self-employment tax is 15.3% on your net profit. An S-corp moves part of that profit out of payroll tax. Here is roughly how it looks at different profit levels, before your specific salary, state, and deductions are factored in.
Savings usually do not cover payroll and filing costs. Stay an LLC for now.
Roughly break-even to modestly ahead. Worth running the numbers with an accountant.
Typically several thousand dollars a year in self-employment tax savings.
Meaningful savings, plus a cleaner setup for retirement contributions and lenders.
Profit means what is left after expenses, not what lands in your account. Two businesses with the same revenue can land on opposite sides of this decision.
No. An S-corp is a tax election. Your LLC stays an LLC at the state level and simply gets taxed under Subchapter S.
Generally by March 15 for it to apply to the current tax year, though newly formed businesses have a window from their start date. Late elections can sometimes be accepted with relief.
What a comparable employer would pay someone to do your job. Many owners land between 35% and 60% of profit, but it depends on your role, hours, and industry.
Yes, you can revoke it, but the IRS generally will not let you re-elect for five years. It is worth getting the timing right the first time.
If you are a creator, our guide to creator write-offs pairs well with this one.
This guide is general information for businesses in the United States and is not tax or legal advice for your situation. Talk to a qualified tax professional before you make an election.
