LLC vs S-Corp
LLC
Simple business structure with flexible taxation
Small businesses and freelancers starting out
S-Corp
Tax election that can reduce self-employment taxes
Profitable businesses earning $40,000+ net profit
Short Answer
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.
Our Verdict
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
Key Differences at a Glance
Key Differences
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
Pros & Cons
LLC
Pros
- Simple to set up and maintain
- Flexible taxation (sole prop, partnership, or S-Corp)
- No required payroll
- Less paperwork/formalities
Cons
- Full self-employment tax on all profits
- Less credibility than corporation for some investors
- Harder to raise outside investment
S-Corp
Pros
- Save on SE taxes (15.3%) on distributions
- Can pay yourself salary + distributions
- Professional credibility
- Pass-through taxation
Cons
- More complex — requires payroll
- Must pay 'reasonable salary' to yourself
- More paperwork (corporate minutes)
- Setup and maintenance costs more
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Frequently Asked Questions
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.
Resources & Learn More
Dive deeper with these curated resources
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