Simple business structure with flexible taxation
Small businesses and freelancers starting out
Tax election that can reduce self-employment taxes
Profitable businesses earning $40,000+ net profit
An LLC (Limited Liability Company) is simpler to manage with flexible taxation. An S-Corp can save on self-employment taxes if the business earns over ~$40,000/year, but requires more formalities (payroll, corporate minutes). Most small businesses start as LLCs.
Start as an LLC for simplicity. Elect S-Corp tax status when your net profit consistently exceeds $40,000-$50,000/year to save on SE taxes.
Choose LLC if
Small businesses and freelancers starting out
Choose S-Corp if
Profitable businesses earning $40,000+ net profit
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| Metric | LLC | S-Corp | Diff |
|---|---|---|---|
| Typical Setup Cost(USD) | $50-500 (state fee) | $500-1500 (attorney + filing) | -80% |
All figures sourced from publicly available data. Last updated May 2026.
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LLC
Simple🏆
S-Corp
More Complex
LLC
None
S-Corp
Significant over $40K profit🏆
LLC
No🏆
S-Corp
Yes
LLC
Low🏆
S-Corp
Higher
LLC
Starting out
S-Corp
Profitable businesses
Most tax advisors recommend electing S-Corp status when your net business profit consistently exceeds $40,000-$50,000/year, as the SE tax savings outweigh the added complexity costs.
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| Attribute | S-Corp | |
|---|---|---|
| Typical Setup Cost(USD) | $50-500 (state fee) | $500-1500 (attorney + filing) |
| SE Tax Rate on Distributions | 15.3% on all profits | 0% on distributions (only on salary) |
Side-by-side comparison of numeric attributes