One of the most common questions we hear from owners is whether they should be an LLC or an S-corp. The honest answer: they aren't the same kind of thing, and the best setup often uses both.
LLC vs S-corp, in plain terms
An LLC is a legal structure that protects your personal assets. An S-corp is a tax election. Many businesses form an LLC and then elect to be taxed as an S-corp once it makes financial sense.
When an S-corp election tends to help
- Your business is consistently profitable beyond what you pay yourself
- You can support a reasonable salary for the work you do
- You want to reduce self-employment tax on profits above that salary
The trade-offs to weigh
- You'll need to run payroll and pay yourself a reasonable wage
- There's more admin: a separate return, payroll filings, and bookkeeping
- The savings only show up past a certain profit level
An S-corp is a tool, not a trophy. It pays off at the right profit level and creates busywork below it.
How to decide
The math comes down to your profit, a reasonable salary for your role, and the cost of the extra compliance. We run those numbers for owners regularly and can tell you quickly whether an election would save you money this year or is worth waiting on.