It’s one of the most common questions we hear from new business owners — and one of the most misunderstood. Part of the confusion is that you’re not really comparing two things of the same kind.
An LLC is a legal structure
A limited liability company is formed under state law and mainly protects your personal assets. By default, a single-member LLC is taxed like a sole proprietor and a multi-member LLC like a partnership.
An S-corp is a tax election
“S-corp” isn’t a separate kind of company — it’s a way of being taxed. An LLC (or a corporation) can elect S-corp status. The appeal: once your business earns enough, paying yourself a reasonable salary and taking the rest as a distribution can reduce self-employment tax.
The trade-off
That savings comes with more rules: you have to run real payroll, file a separate return, and document a reasonable salary. Below a certain income level, the extra cost and hassle can outweigh the benefit.
So the honest answer is: it depends on how much you earn, how you pay yourself, and how much administration you’re willing to take on. We run the numbers for clients and set the structure up correctly — including the elections and payroll — so you start on the right footing.
General information, not legal or tax advice.