LLC vs S-corp Guide (US)

A plain-English guide to the payroll-tax tradeoffs between an LLC and an S-corp.

If you are comparing an LLC (taxed as a sole proprietorship) to an S-corp, the main difference is payroll tax. LLC profit is subject to self-employment tax. An S-corp pays payroll tax on a reasonable salary and can take the rest as distributions (usually no payroll tax). See Schedule SE and the IRS S-corp overview.

Last reviewed: January 23, 2026.

Start with payroll tax math, then layer in admin costs, state fees, and QBI. The calculator handles the first step.

Key takeaways

The payroll tax gap is real. It is just not the whole decision.
Reasonable salary rules still apply to S-corps.
Admin costs and state fees can wipe out the savings at lower profit levels.

When an S-corp tends to make sense

Net profit is high enough to justify payroll and compliance costs.
You can defend a reasonable salary with documentation.
Your state does not add heavy S-corp fees or taxes.

When staying an LLC is usually simpler

Profit is still small or inconsistent.
You want to avoid payroll services and extra filings.
You do not want to manage reasonable compensation rules yet.

Decision checklist

What is my realistic annual net profit range?
What salary would my CPA defend for my role?
What are the annual payroll + tax prep + state fees?
Does the S-corp election deadline align with my timeline?
How would the change affect QBI or other deductions?

Questions to ask your CPA

What salary range should we defend for an audit?
How do state fees change the break-even point?
Does an S-corp election change QBI or retirement options?
What is the cleanest effective date for the election?

Compliance note

This guide is for planning and coordination only. It does not provide tax or legal advice. Confirm eligibility and calculations with a qualified professional.

Sources

IRS: Schedule SE (Self-Employment Tax)
https://www.irs.gov/forms-pubs/about-schedule-se-form-1040
IRS: S corporations
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
IRS: Instructions for Form 2553
https://www.irs.gov/instructions/i2553

Last reviewed: January 23, 2026.

Start with payroll tax math, then layer in admin costs, state fees, and QBI. The calculator handles the first step.

Key takeaways

The payroll tax gap is real. It is just not the whole decision.
Reasonable salary rules still apply to S-corps.
Admin costs and state fees can wipe out the savings at lower profit levels.

When an S-corp tends to make sense

Net profit is high enough to justify payroll and compliance costs.
You can defend a reasonable salary with documentation.
Your state does not add heavy S-corp fees or taxes.

When staying an LLC is usually simpler

Profit is still small or inconsistent.
You want to avoid payroll services and extra filings.
You do not want to manage reasonable compensation rules yet.

Decision checklist

What is my realistic annual net profit range?
What salary would my CPA defend for my role?
What are the annual payroll + tax prep + state fees?
Does the S-corp election deadline align with my timeline?
How would the change affect QBI or other deductions?

Questions to ask your CPA

What salary range should we defend for an audit?
How do state fees change the break-even point?
Does an S-corp election change QBI or retirement options?
What is the cleanest effective date for the election?

Compliance note

This guide is for planning and coordination only. It does not provide tax or legal advice. Confirm eligibility and calculations with a qualified professional.

Sources

IRS: Schedule SE (Self-Employment Tax)
https://www.irs.gov/forms-pubs/about-schedule-se-form-1040
IRS: S corporations
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
IRS: Instructions for Form 2553
https://www.irs.gov/instructions/i2553

LLC vs S-corp Guide (US)

Key takeaways

When an S-corp tends to make sense

When staying an LLC is usually simpler

Decision checklist

Questions to ask your CPA

Compliance note

Sources

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Key takeaways

When an S-corp tends to make sense

When staying an LLC is usually simpler

Decision checklist

Questions to ask your CPA

Compliance note

Sources