The short answer
An LLC is a legal structure. An S corp is a tax election an LLC can make. A default single-member LLC pays self-employment tax on all profit. An LLC taxed as an S corp pays payroll tax only on a reasonable salary. At $120,000 of profit and a $60,000 salary, a single filer saves about $5,160 in 2026 federal tax, or about $2,700 after roughly $3,000 a year to run the S corp. Below about $80,000 of profit, the election rarely pays.
Two different questions
The LLC question is legal: do you want a separate entity that protects your personal assets from business liabilities? For most owners, yes.
The S corp question is about tax: once the LLC exists, do you want it taxed as an S corporation instead of by default? That depends on profit, stability and your willingness to run payroll.
Side by side
| Default single-member LLC | LLC taxed as S corp | |
|---|---|---|
| Federal return | Schedule C on your 1040 | Form 1120-S plus a K-1 |
| Self-employment / payroll tax | 15.3% on 92.35% of all profit (to $184,500) | 15.3% on your salary only |
| Owner pay | Draws, any time | Salary through payroll, then distributions |
| QBI deduction | On profit less half of SE tax | On distributions only; your salary helps the wage limit |
| Extra annual cost | Minimal | About $2,500–$4,000 |
| Best for | Under about $80k profit, or variable income | Consistent profit above about $100k |
Worked example: $120,000 of profit
A single owner with $120,000 of net profit pays about $16,955 in self-employment tax as a default LLC. With an S corp election and a $60,000 salary, payroll tax on that salary is about $9,180. After income tax and the QBI deduction on both sides, total federal tax falls by about $5,160. Take out about $3,000 a year for the 1120-S, payroll and unemployment tax (which also shrinks the QBI deduction) and the net benefit is about $2,700 a year, or roughly $225 a month for the extra paperwork.
State rules to check first
- California: 1.5% S corp franchise tax, $800 minimum
- New York City: doesn't recognize the S election for city corporate tax
- Tennessee and some other states tax entity income directly
- Pass-through entity tax (PTET) elections may make an S corp more attractive in high-tax states
Frequently asked questions
Is an S corp a type of LLC?
No. An LLC is a legal entity formed under state law. An S corp is a federal tax election that an LLC or corporation can make with Form 2553.
Can I switch back from an S corp?
Yes, by revoking the election, but you generally can't re-elect for five years. Plan the decision rather than testing it.
- Is an S corp a type of LLC?
- No. An LLC is a legal entity formed under state law. An S corp is a federal tax election that an LLC or corporation can make with Form 2553.
- Can I switch back from an S corp?
- Yes, by revoking the election, but you generally can't re-elect for five years. Plan the decision rather than testing it.
General information based on federal law for tax year 2026, not tax advice for your situation. State rules vary.
Want this applied to your situation? Book a free 30-minute call with Akanchya Acharya, CPA at acharyacpa.com/contact or email [email protected].
The latest version of this guide: acharyacpa.com/resources/llc-vs-s-corp · Updated September 29, 2026