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LLC vs S-Corp
A plain-English, side-by-side breakdown of how LLCs and S-Corps differ on taxes, paperwork, and liability protection.
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What this LLC vs S-Corp helps you do
A plain-English side-by-side of LLCs and S-corps: what each actually is, how the tax math works, and how to know when it's time to make the election.
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LLC vs S-Corp FAQ's
Is an S-corp a different business entity than an LLC?
No. An S-corp is a tax election, not a legal entity. You form an LLC (or corporation) with your state, then optionally elect S-corp taxation with the IRS on top of it. Your legal entity stays an LLC either way.
Does electing S-corp status give me better liability protection?
No. Liability protection comes entirely from the underlying LLC (or corporation) and from running it properly — separate bank accounts, real contracts, no mixing funds. The S-corp election only changes how profit is taxed.
How much profit do I need before an S-corp election makes sense?
There's no single number, but many small business owners start seeing meaningful savings somewhere in the $40,000–$60,000+ net profit range, once payroll and accounting costs are factored in. Run your specific numbers with a CPA before deciding.
What is 'reasonable salary' and why does it matter so much?
It's the salary the IRS expects an S-corp owner to pay themselves for the work they actually do, based on industry norms. Paying yourself an artificially low salary to dodge payroll tax is a common audit trigger and can result in back taxes and penalties.