LLC vs S-Corp: Side-by-Side Comparison
The single biggest tax decision most small business owners make is whether to stay a default LLC or elect S-Corp status. The difference comes down to self-employment tax: a sole proprietor or single-member LLC pays 15.3% SE tax on every dollar of profit, while an S-Corp owner pays payroll tax only on a reasonable salary — distributions above that escape it. Here is how they compare on the factors that actually matter.
Business Entity Comparison
See how each entity type affects your taxes at your income level
| Feature | Sole Prop | LLC (Single) | S-Corp | C-Corp |
|---|---|---|---|---|
| Formation cost | $0 | $300-$500 | $300-$500 + S election | $300-$500 + articles |
| Liability protection | ||||
| Self-employment tax | Full SE tax | Full SE tax | On salary only | No SE tax (payroll tax) |
| Pass-through taxation | ||||
| Reasonable salary required | ||||
| QBI deduction eligible | ||||
| Annual compliance burden | Minimal | Low | Medium | High |
| Best for income range | Under $50K | Under $50K | $60K-$500K+ | $500K+ (reinvest) |
| Estimated SE Tax | $14,130 | $14,130 | $9,184 | $7,650 |
| Estimated Total Tax | $26,174 | $26,174 | $20,893 | $28,650 |
| Savings vs Sole Prop | $0 | $0 | $4,945 | N/A (double tax) |
The Bottom Line
Rule of thumb: below roughly $40,000–$50,000 of annual profit, the payroll and filing costs of an S-Corp usually outweigh the savings. Above that, savings grow with profit — often $5,000–$15,000 per year in the $80K–$200K range.
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