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 before the $1,500–$3,000 annual cost of running the S corp.
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 $1,500–$3,000 |
| Best for | Under about $60k profit, or variable income | Consistent profit above about $60k–$80k |
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 roughly $2,000 in added costs and the net benefit is around $3,000 a year.
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.
General information based on federal law for tax year 2026, not tax advice for your situation. State rules vary.