If you're running a small business, you’ve probably wondered:
Should I stay an LLC, or switch to an S Corp for tax savings?
You’re not alone.
This single decision can have a dramatic impact on how much you owe the IRS—and how much you keep in your own pocket.
Let’s break it down and give you the real answers and some smart strategies that have helped thousands of business owners build wealth and protect what they’ve worked so hard to create.
1. The Big Picture: LLC or S Corp?
Both LLCs and S Corps provide personal liability protection. But when it comes to taxes? They couldn’t be more different.
- LLC (Limited Liability Company): By default, it’s taxed as a sole proprietorship or partnership. All net income is passed through to the owner(s) and reported on your personal tax return. Simple. Clean. But...
- S Corporation: Offers the same liability protection, BUT allows you to split your income between salary and distributions—and that’s where the tax savings magic begins.
So, which structure saves more on taxes?
Let’s run the numbers...
2. S Corp vs LLC: Where the Tax Savings Kick In
Here’s the real-world scenario we see all the time:
Let’s say your business nets $100,000.
As an LLC, that entire amount is subject to self-employment tax (15.3%)—that’s over $15,000 right out of your pocket.
But as an S Corp, you could:
- Pay yourself a reasonable salary (let’s say $50,000)
- Take the other $50,000 as a distribution, which isn’t subject to self-employment tax
That could save you $7,650 or more in payroll taxes alone.
And over time? That adds up—year after year.
3. Yes, There’s a Catch (But It’s Worth It)
S Corps come with a few extra steps:
- Payroll setup (you’ll need to run a W-2)
- Quarterly filings
- Reasonable compensation analysis
- More IRS scrutiny
But don’t let that scare you. If you're making $40K+ net profit, the tax savings often far outweigh the extra admin. And when done right, it’s completely IRS-compliant and 100% legit.
In fact, “s corp advantages over llc” often include:
- Lower overall tax liability
- Increased retirement contribution options
- More flexible tax planning
4. How to Make the Switch (and When to Do It)
You can keep your LLC but elect to be taxed as an S Corp—best of both worlds.
Just file IRS Form 2553 (and don’t miss the deadline—generally within 75 days of the tax year start).
Timing matters.
If you’re just launching your business and not earning much yet, sticking with an LLC structure for now may make sense.
But once your profits grow? Making the S Corp election could be a game-changer.
FAQs: LLC vs S Corp for Taxes
What is the difference between an LLC and an S Corp for taxes?
An LLC is a flexible structure where all net profits pass through to the owner(s) and are subject to self-employment tax. An S Corp allows business owners to split income between salary (taxed) and distributions (not subject to self-employment tax), potentially lowering their tax bill.
Which business structure saves more on taxes, LLC or S Corp?
In most cases, S Corps save more on taxes—especially once your business is netting over $40,000 annually. The ability to reduce self-employment tax through distributions is a powerful strategy.
How does an LLC tax structure work?
By default, an LLC is taxed as a sole proprietorship or partnership. All business income is passed through to the owner(s) and reported on their personal tax return.
What are the tax advantages of an S Corp over an LLC?
- Avoids self-employment tax on a portion of income
- Can increase take-home pay
- Helps business owners maximize retirement contributions and fringe benefits
Can I convert my LLC to an S Corp for tax savings?
Yes! You can keep your LLC legal structure and simply elect to be taxed as an S Corp. It’s done by filing IRS Form 2553. Work with a tax advisor to make sure it's done correctly and timely.
Final Thoughts: Don’t Leave Tax Savings on the Table
Mark J. Kohler and the Main Street Professional community have helped thousands of entrepreneurs decide between LLC vs S Corp, and the right answer always depends on your income, goals, and how you want to grow.
But here's the bottom line:
If you're not exploring the S Corp strategy, you're probably overpaying.
Ready to go Main Street Pro and help your clients save big?
Learn more about our Main Street Tax Pro Certification or book a FREE Discovery Call with one of our enrollment specialists.
Learn how to legally structure businesses for maximum tax savings, build your practice, and become the go-to expert in your field.
