LLC PathfinderLLC vs S Corp: What's the Difference?
An LLC is a legal structure created under state law. An S corporation is a federal tax election (IRS Form 2553). An LLC can elect to be taxed as an S corp, so it's often not either/or.
| LLC (default tax) | LLC taxed as S corp | |
|---|---|---|
| Self-employment tax | 15.3% on all net profit (up to the SS wage base for the 12.4% part) | Only on the salary you pay yourself |
| Payroll required | No | Yes, a reasonable salary |
| Extra tax return | No (single member: Schedule C) | Form 1120-S |
| Admin cost | Low | Higher (payroll, bookkeeping, CPA) |
| Owners | Unlimited, any type | Max 100, US persons only |
Simple savings example
Net profit $100,000. As a default LLC, SE tax applies to roughly all of it. As an S corp paying a $60,000 reasonable salary, payroll tax applies to the $60,000, and the remaining $40,000 distribution avoids the 15.3%, roughly $6,000 less before extra admin costs. Actual savings depend on your numbers; talk to a CPA.
Non-US owners can't be S corps
S corp shareholders must be US citizens or residents, so non-resident founders usually stay a default LLC or form a C corp.
FAQ
Is an S corp better than an LLC?
Neither is better. An S corp election typically starts to pay off once profit is high enough that payroll-tax savings exceed the extra payroll and accounting costs.
Can an LLC be an S corp?
Yes. An eligible LLC can elect S-corp taxation by filing IRS Form 2553.
Last updated 2026-10-11. Not legal or tax advice.