LLC vs S Corp
The comparison most articles get wrong, because these are not competing options.
Verdict: this is not an either-or. An LLC is a legal structure and an S corp is a tax status. The usual answer for a profitable business is an LLC that has elected to be taxed as an S corp.
Nearly every article framing this as a versus question is confusing two different layers.
Your legal entity is what you file with the state. LLC, corporation, or nothing at all, which makes you a sole proprietor. This determines liability protection.
Your tax status is how the IRS treats that entity. This is a separate choice, made on a separate form, and it determines what you pay.
An LLC can be taxed as a sole proprietorship, which is the default, as a partnership if it has several owners, as an S corporation by filing Form 2553, or as a C corporation. Same LLC, four possible tax treatments.
What the S corp election changes
By default, all of your LLC's profit carries self-employment tax at 15.3%, made up of 12.4% for Social Security up to the 2026 wage base of $184,500 and 2.9% for Medicare with no cap.
Elect S corp treatment and you become an employee of your own company. You pay yourself a salary, which carries the same 15.3% as payroll tax. Everything left comes out as a distribution, and distributions carry no payroll tax. On $120,000 of profit with a $60,000 salary, that is roughly $7,800 of payroll tax you stop paying.
Why the real number is smaller
Two things eat into it, and the first one is missing from most calculators.
The qualified business income deduction is worth 20% of your business income. A W-2 salary is not business income, so every dollar you move into salary shrinks that deduction. On larger profits this can eat well over half the headline saving.
The second is cost. An S corp means real payroll, quarterly payroll filings, and a separate Form 1120-S return. Most owners pay a payroll service and a CPA, commonly $1,200 to $2,500 a year combined.
Our S corp calculator counts all three: the payroll tax you save, the deduction you lose, and what it costs to run. It is the only honest way to answer this.
The rule you cannot design around
The entire saving comes from paying yourself a smaller salary. The IRS knows this, which is why the law requires reasonable compensation for the work you actually do.
There is no formula. The test is what you would have to pay someone else to do your job. Pay yourself a token salary on a large profit and you have built your own audit case. Document how you picked the number and keep that documentation.
When it is worth electing
Below roughly $50,000 of profit the costs usually swallow the savings. Somewhere above $80,000 to $100,000 of steady profit the case gets strong. Those are rough markers, not rules, which is why the calculator asks for your numbers rather than quoting a threshold.
Two things to weigh before you file. The election is a commitment: revoking it generally locks you out of re-electing for five years. And your profit needs to be steady, because payroll and a second tax return cost the same in a bad year as a good one.
Frequently asked questions
The question does not quite work. An LLC is a legal entity and an S corp is a tax election. Most profitable small businesses end up as an LLC that has elected S corp tax treatment.
No. You keep the LLC exactly as it is and file Form 2553 to change how it is taxed. Your legal structure and liability protection do not change.
There is no universal number. Below about $50,000 the costs usually outweigh the savings, and above about $80,000 to $100,000 of steady profit the case is often strong. Run your own figures in the calculator.
The salary you would have to pay someone else to do your job. The IRS does not publish a formula, so document how you arrived at your figure and keep the evidence.
You can revoke it, but the IRS generally will not let you re-elect for five years without permission. Treat it as a decision you intend to keep.