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S-Corp vs LLC: Which Is Better for Tax Savings?

Updated March 2026 · 5 min read

If you're a self-employed business owner earning over $50,000 per year, you've probably heard that electing S-Corp status can save you thousands in taxes. But what exactly is the difference between an LLC and an S-Corp, and when does the switch actually make sense?

Here's the key insight most people miss: an S-Corp is not a business structure — it's a tax election. Your LLC stays exactly the same. You're only changing how the IRS taxes your income.

The Core Difference: How You're Taxed

As a Standard LLC (Sole Proprietor)

All of your net business income is subject to self-employment (SE) tax at 15.3% (12.4% Social Security + 2.9% Medicare). This is on top of your regular income tax. For example, on $100,000 net income, you pay approximately $14,130 in SE tax alone.

As an LLC with S-Corp Election

You split your income into two buckets:

• Reasonable salary — Subject to payroll tax (15.3%), but typically only 40-60% of your income
• Distributions — NOT subject to SE/payroll tax, only regular income tax

On $100,000 net income with a $50,000 salary, only the $50,000 salary gets hit with payroll taxes. That's roughly $7,000+ saved per year.

Side-by-Side Comparison

Feature	Standard LLC	LLC + S-Corp Election
Business Structure	LLC	LLC (unchanged)
IRS Tax Treatment	Sole Proprietor (Schedule C)	S-Corporation (Form 1120-S)
SE Tax Applies To	All net income	Salary only
Payroll Required	No	Yes (for yourself)
Annual Tax Forms	Schedule C, Schedule SE	Form 1120-S, W-2, K-1
Extra Annual Costs	None	~$600 payroll + ~$500 CPA
Break-Even Point	N/A	~$40,000-$50,000 net income
Best For	Income under $50K/yr	Income over $50K/yr

When Should You Elect S-Corp Status?

S-Corp election generally makes sense when:

• Your net business income consistently exceeds $50,000/year
• You're willing to run payroll for yourself (about $50/month)
• You plan to keep the business running for at least a few years
• Your business doesn't have significant losses to pass through

When Should You Stay as a Standard LLC?

• Your net income is under $40,000-$50,000/year
• Your business is seasonal or inconsistent
• You're just getting started and want to keep things simple
• You plan to seek outside investors (S-Corps have shareholder restrictions)

The Bottom Line

For most profitable single-owner LLCs, S-Corp election is the single biggest tax optimization available. It doesn't change anything about your business — it just changes how the IRS taxes your profits, and it can save you $5,000-$20,000+ every single year.