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

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

Thinking about forming an LLC? Already have one but wondering if you should switch to an S-Corp?

You’re not alone — this is one of the most common questions we get from business owners. Let’s break it down in plain English so you can figure out which structure saves you the most on taxes.

🔍 How LLCs Are Taxed

An LLC (Limited Liability Company) is one of the easiest business entities to start — and it’s super flexible.

But here’s what you need to know:

• By default, a single-member LLC is taxed like a sole proprietorship. That means you pay income tax + self-employment tax (15.3%) on your net profits.

• A multi-member LLC is taxed like a partnership, with each partner reporting their share of income.

• But here’s the twist: you can elect to have your LLC taxed as an S-Corp.

This is where the tax savings magic can happen 👇

🚀 S-Corp Tax Advantages

When you elect S-Corporation status, you're still an LLC legally — but taxed differently.

The key benefit? You can split your income into two parts:

1. A reasonable salary (subject to payroll & self-employment taxes)

2. A distribution (not subject to self-employment tax)

By paying yourself a salary and taking the rest as a distribution, you avoid paying 15.3% self-employment tax on everything. That’s where the savings stack up.

📌 Quick Note: You must run payroll and file corporate tax returns with an S-Corp. It’s more paperwork, but often worth it.

💡 Real-Life Example: Freelance Win

Let’s say Sarah is a freelance graphic designer who makes $100,000/year as a single-member LLC.

Scenario A: LLC (Default Taxation)

• Entire $100,000 is subject to self-employment tax (15.3%)

• That’s $15,300 in SE tax alone (not including income tax)

Scenario B: LLC with S-Corp Election

• Pays herself $50,000 in salary (subject to SE tax)

• Takes $50,000 as a distribution (not subject to SE tax)

• SE tax = $7,650

• Saves ≈ $7,650 per year

Boom 💥 — real savings, just from how you structure your business.

📊 LLC vs. S-Corp: Side-by-Side

Feature	LLC (Default)	LLC w/ S-Corp Election
Self-Employment Tax	100% of profits	Only on salary portion
Payroll Required	❌ No	✅ Yes
Corporate Tax Return	❌ No (uses Schedule C)	✅ Yes (Form 1120S)
Owner Draws Allowed	✅ Yes	✅ Distributions allowed
Best For	Simplicity, low profit	Higher profit, tax savings

🔥 Want to Save Big on Taxes?

If you’re earning consistently in your business, the S-Corp election might be your secret weapon.

✅ We can help you:

• Set up your LLC or S-Corp

• File the S-Corp election paperwork

• Handle payroll + compliance

• Build a tax-saving strategy customized to YOU

👉 Book a Free Strategy Call with Philly Tax Team »

Let’s make sure your business structure works for you — not against you at tax time.