Business Entity Comparison Calculator 2026 | LLC vs S-Corp vs C-Corp

What Makes This Calculator Different

Total Cost of Ownership

Not just taxes—we include formation costs, annual compliance, payroll services, and accounting fees for each entity type.

Smart Recommendations

Our algorithm considers your priorities—simplicity vs. savings, investment plans, liability concerns—not just the lowest tax.

5-Year Projection

See the long-term impact of your choice. Some entities have higher upfront costs but save more over time.

Business Entity Types at a Glance

Each business structure has different tax treatment, liability protection, and compliance requirements.

Entity Type	Tax Treatment	SE Tax	Liability	Best For
Sole Proprietorship	Pass-through (Schedule C)	Full SE tax on all profit	None (personal assets at risk)	Side hustles, freelancers starting out
Single-Member LLC	Pass-through (Schedule C)	Full SE tax on all profit	Limited liability protection	Solo businesses wanting liability protection
LLC + S-Corp Election	Pass-through (Form 1120-S)	SE tax only on salary	Limited liability protection	Profitable businesses ($80K+)
C-Corporation	Corporate (Form 1120)	Payroll tax on salary only	Strongest protection	Businesses raising investment
Partnership	Pass-through (Form 1065)	Full SE tax for active partners	Limited (varies by type)	Multi-owner businesses

Understanding Business Entity Types

Sole Proprietorship: The Default Starting Point

A sole proprietorship is the simplest business structure—it's what you have by default when you start earning business income without forming a separate entity. You report business income on Schedule C of your personal tax return and pay self-employment tax (15.3%) on all net profits.

The catch: You have no liability protection. If your business is sued, your personal assets (home, savings, car) are at risk. For many businesses, this risk alone justifies forming an LLC.

LLC: Liability Protection with Tax Flexibility

A Limited Liability Company (LLC) is a legal structure that separates your personal assets from your business. If your business is sued, generally only business assets are at risk (with some exceptions for fraud or personal guarantees).

By default, a single-member LLC is a “disregarded entity” for tax purposes—meaning you pay the same taxes as a sole proprietorship. The key difference is the liability shield.

S-Corp Election: The Tax Savings Strategy

An S-Corp isn't actually a business type—it's a tax election that can be made by an LLC or corporation. When you elect S-Corp status, you become an employee of your own business and must pay yourself a “reasonable salary.”

The benefit: While salary is subject to payroll taxes (same as SE tax), any profit above your salary can be taken as distributions, which are not subject to the 15.3% SE tax. For a business with $150,000 profit and a $90,000 salary, that's $60,000 in distributions avoiding roughly $9,000 in SE tax.

The cost: You need to run payroll (about $100/month), file Form 1120-S, and maintain more rigorous bookkeeping. These costs typically run $2,000-$3,000/year. That's why S-Corp only makes sense above a certain profit threshold—usually $60,000-$80,000.

C-Corporation: For Investment and Growth

C-Corps are the most formal business structure and the only option for raising venture capital or going public. Profits are taxed at the corporate level (21% federal), and then again when distributed as dividends (0-20% qualified dividend rate).

This “double taxation” makes C-Corps less attractive for most small businesses. However, C-Corps can be beneficial if:

You plan to raise investment capital
You want to retain significant earnings in the business
You plan to offer stock options to employees
The 21% corporate rate is lower than your personal rate

Partnership: For Multi-Owner Businesses

Partnerships are pass-through entities where profits flow to partners based on the partnership agreement. Each partner reports their share on their personal return and pays SE tax on active business income.

Partnerships can elect S-Corp status if they meet the requirements, allowing partners to take distributions with reduced SE tax liability.

Quick Comparison: Pros & Cons

Sole Proprietorship

PROS

Zero formation costs
Simplest tax filing

CONS

No liability protection
Full SE tax on profits

Single-Member LLC

PROS

Liability protection
Simple taxation

CONS

Same SE tax as sole prop
Annual compliance costs

LLC + S-Corp Election

PROS

SE tax savings on distributions
Liability protection

CONS

Payroll complexity
Higher compliance costs

C-Corporation

PROS

Easier to raise investment
21% flat corporate rate

CONS

Double taxation
Most complex compliance

Partnership

PROS

Flexible profit allocation
Pass-through taxation

CONS

Full SE tax for active partners
Complex agreements needed

Frequently Asked Questions

What is the difference between an LLC and an S-Corp?

An LLC (Limited Liability Company) is a legal business structure that provides liability protection. An S-Corp is a tax election that can be made by an LLC or corporation. When an LLC elects S-Corp status, the owner can split income between salary and distributions, potentially saving on self-employment tax. However, S-Corp requires payroll, reasonable salary compliance, and additional filings.

When does an S-Corp election make sense?

An S-Corp election typically makes sense when your net profit exceeds $60,000-$80,000 annually. At this level, the self-employment tax savings on distributions outweigh the additional compliance costs of running payroll and filing corporate returns. Below this threshold, the costs often exceed the benefits.

What is double taxation for C-Corps?

C-Corporations pay corporate income tax (21% federal rate) on their profits. When those profits are distributed as dividends to shareholders, the shareholders pay tax again at qualified dividend rates (0-20%). This "double taxation" makes C-Corps less tax-efficient for businesses distributing all profits, but can be beneficial for businesses retaining earnings or raising investment.

Which business structure is best for a sole owner?

For sole owners, the best structure depends on profit level and priorities. Low profits (<$50K): Sole proprietorship or single-member LLC for simplicity. Medium profits ($60K-$150K): LLC with S-Corp election for tax savings. High profits (>$200K) with retained earnings or investment plans: Consider C-Corp. Most small business owners benefit from an LLC with S-Corp election once profitable.

Does Texas have state income tax on business entities?

Texas has no state income tax, which simplifies entity comparison. However, Texas does have a franchise tax (also called margin tax) that applies to most business entities with annual revenue exceeding $2.47 million. Most small businesses fall below this threshold and effectively pay $0 in state business taxes.

What is a "reasonable salary" for S-Corp owners?

The IRS requires S-Corp shareholder-employees to receive "reasonable compensation" for services performed. This is typically 50-70% of the business profit, depending on the industry and role. The salary portion is subject to payroll taxes, while distributions are not. Setting salary too low risks IRS scrutiny; too high negates the tax benefit.

Business Entity Comparison Calculator