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S-Corp vs. LLC: Which Actually Saves You More on Taxes?

Updated: 4 days ago

An LLC and an S-corp aren't actually competing legal structures — S-corp is a tax election an LLC (or corporation) can make with the IRS. The real question isn't "LLC or S-corp," it's whether electing S-corp tax treatment saves your specific business money.

Where the Savings Actually Come From

As a default LLC, all your business profit is subject to self-employment tax (15.3%) on top of income tax. With an S-corp election, you split your income into two buckets:

  • A reasonable salary — subject to payroll tax (the equivalent of self-employment tax)

  • Remaining profit distributions — NOT subject to self-employment tax at all

That distribution slice is where the savings live. On $120,000 of profit, paying yourself a $70,000 reasonable salary and taking $50,000 as distributions can save several thousand dollars a year in self-employment tax versus a default LLC — the exact number depends entirely on your numbers.

The Costs That Eat Into the Savings

  • Payroll processing — S-corps must run formal payroll for the owner's salary, which means payroll software, tax filings, and compliance

  • A separate business tax return (Form 1120-S) instead of reporting everything on your personal Schedule C

  • "Reasonable salary" scrutiny — the IRS requires the salary portion to be genuinely reasonable for your role and industry; underpaying yourself to dodge payroll tax is a documented audit trigger

The Rough Break-Even Point

S-corp election tends to make sense once net business profit is consistently above roughly $40,000–$60,000 a year — below that, the payroll and compliance costs often eat most or all of the tax savings. Above it, the savings usually outpace the added overhead.

How We Help You Decide

This isn't a one-size answer — it depends on your actual profit, what a reasonable salary looks like in your field, and your state's rules. We run the real numbers for your business, and if S-corp makes sense, handle the election and the ongoing bookkeeping and payroll that come with it.

All State Tax Resolution, Inc. — federally licensed Enrolled Agent firm. Every case is different; results depend on individual circumstances and are never guaranteed.

Founders in Thailand asking this exact question should also read US LLC & Stripe for Founders in Bangkok & Chiang Mai

 
 
 

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