LLC vs S-Corp — Which Is Right for Your Business?
Both offer liability protection and tax benefits, but they work very differently. Here's a clear comparison to help you decide.
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| Feature | LLC | S-Corp |
|---|---|---|
| Liability protection | Yes | Yes |
| Formation cost | $50–$500 (state filing fee) | $50–$500 + S-Corp election (Form 2553) |
| Taxation | Pass-through (all profit = self-employment tax) | Pass-through (salary taxed, distributions not SE taxed) |
| Self-employment tax savings | None — all profit is SE income | Yes — only salary is subject to FICA |
| Payroll required? | No | Yes — must pay yourself "reasonable salary" |
| Owners | Unlimited members, any type | Max 100 shareholders, US citizens/residents only |
| Ongoing paperwork | Minimal (annual report in most states) | More — payroll filings, corporate minutes, Form 1120-S |
| Best for | New businesses, side hustles, solo operators earning <$50K profit | Businesses earning >$50K profit with potential SE tax savings |
The Key Decision: When Does S-Corp Make Sense?
The S-Corp advantage kicks in when your business profit is high enough that the self-employment tax savings exceed the cost of running payroll (~$500–$2,000/yr).
Rule of thumb: If your net profit (after expenses) is consistently above $50,000–$60,000/year, talk to an accountant about S-Corp election. Below that, an LLC taxed as a sole proprietorship or partnership is usually simpler and cheaper.
Free Tools & Calculators
Calculate the total cost to form and maintain an LLC in any state. Includes filing fees, registered agent, annual report, and franchise tax costs.
Answer 10 questions about your business to get a personalized recommendation on whether you should operate as a sole proprietorship, LLC, or S-Corp.
Estimate your total first-year startup costs including LLC formation, licenses, insurance, equipment, and tax obligations. Customized by state and industry.
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This is general information, not legal or tax advice. Consult a CPA or tax advisor for your specific situation.