LLC vs S-Corp: Which saves more on taxes?
David TalleyUpdated December 5, 2025
Quick Answer
An S-Corp election typically saves self-employment tax once your business profits exceed $40,000-50,000 annually. With an S-Corp, you pay yourself a reasonable salary (subject to payroll taxes) and take additional profits as distributions (not subject to self-employment tax). However, S-Corps require payroll, separate tax filings, and more compliance. The break-even point depends on your specific profit level.
This is probably the question I get asked most by business owners. The answer isn't complicated, but it does require running actual numbers.
How an LLC is taxed by default:
All your net profit flows to your personal return and you pay self-employment tax (15.3%) on all of it, plus income tax. Make $100,000 profit? You're paying roughly $15,300 in self-employment tax alone.
How an S-Corp changes things:
You pay yourself a "reasonable salary"—let's say $50,000. You pay payroll taxes on that salary. The remaining $50,000 comes out as a distribution, which is NOT subject to self-employment tax.
In this example, you just saved about $7,650 in self-employment taxes.
When it makes sense to elect S-Corp:
- Generally when profits exceed $40,000-50,000 after paying yourself
- When you can actually pay yourself a reasonable salary (low revenue businesses may not qualify)
- When you're willing to run payroll and file separate corporate returns
When to stay as an LLC:
- Profits are inconsistent or under $40,000
- You're just starting out and don't want the compliance burden
- Your business has significant losses (LLCs are often better for loss pass-through)
The hidden costs of S-Corp:
- Payroll service ($500-1,500/year)
- Separate S-Corp tax return ($500-1,500/year)
- Quarterly payroll tax filings
- More accounting complexity
The bottom line:
Run the numbers with someone who can actually calculate your specific situation. I've seen people elect S-Corp too early and pay more in compliance costs than they saved in taxes. I've also seen people wait way too long and leave tens of thousands on the table.
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