Plain-English guide · IRS sources
LLC or S-corp: which one leaves you with more?
The same election costs an owner $1,010 a year at $20,000 of profit and saves $3,939 at $120,000, so the answer turns on where your profit sits.
See the side-by-sideShort answer
It depends on your profit. On our example numbers, an S-corp starts to save an LLC owner money at about $40,500 a year; below that, the default LLC costs less. Above it, the election also brings payroll and a second tax return.
This is an estimate, not tax advice. Confirm your numbers with a CPA before you elect S-corp status.
Checked against the IRS and Social Security rates on November 5, 2026.How do the two tax treatments compare?
| Same LLC, two tax treatments | Default LLCDisregarded entity or partnership | LLC with S-corp electionTaxed as an S corporation |
|---|---|---|
| Tax on profit | You pay self-employment tax of 15.3% on 92.35% of your profit. The Social Security part stops at the 2026 base of $184,500. | 7.65% payroll tax from you and from the company, on your salary only. The rest of the profit passes through without payroll tax. |
| Payroll and salary | No payroll for yourself. You take draws and pay the tax with your return. | You are an employee of your company. The IRS requires reasonable compensation, with no fixed percent. |
| Extra paperwork | A single-member LLC reports its activity on the owner's own return. A multi-member LLC files as a partnership. | Payroll filings, a Form 1120-S return each year, and a Schedule K-1 for each shareholder. |
| State treatment | Set by your state. Some charge an LLC fee or franchise tax. | Set by your state. Some charge an S-corp or franchise tax. Check your state tax agency. |
| Who it tends to fit | Newer or lower-profit businesses where the extra costs would eat the saving. | Owners whose profit is well above the break-even and who can run payroll steadily. |
| How to switch | Nothing to file. It is the default. | File Form 2553, signed by all shareholders, by the deadline in the guide below. |
Income tax and the QBI deduction are not in these comparisons. These are estimates, not tax advice: confirm yours with a CPA before you elect.
What are the numbers behind the answer?
Why the break-even moves: payroll service, the Form 1120-S return and any state tax are fixed yearly costs, so they take a bigger bite out of a smaller saving. Pay yourself too little and the IRS can challenge the saving, because it looks at what you did for the company (IRS, Nov 5, 2026).
Want your own break-even? Put your profit, salary and costs into the calculator.
Stay an LLC, or consider an S-corp?
Profit is near or under the break-even
- Your yearly profit is below roughly $40,500 on our example numbers.
- You do not want payroll or a second tax return.
- Your state adds a tax on S-corps that you would owe every year.
Profit is well above it and steady
- Your yearly profit is well past the break-even and likely to stay there.
- You can pay yourself a salary that fits your work.
- You will run payroll on time every pay period.
How do you switch to S-corp tax status?
Check the tests
The company needs only allowed shareholders, no more than 100 of them, and one class of stock. An LLC that meets the tests does not also file Form 8832.
File Form 2553 on time
File no more than 2 months and 15 days after the tax year starts, or any time in the year before. All shareholders sign. Dates are in the S-corp election deadline guide.
Set up payroll and the new return
Start paying yourself a salary and plan for Form 1120-S. The default your LLC starts from is explained in how the IRS classifies an LLC; formation costs are in the LLC cost breakdown.
See where the S-corp pays for you
Enter your profit, salary and costs. The calculator shows your yearly difference and your break-even.
Open the calculatorCommon questions
Is an S-corp better than an LLC?
Neither is better for everyone. An S-corp can cut payroll tax once profit is well above the extra costs, and it adds payroll, a second return and sometimes a state tax. On our example numbers the break-even is about $40,500 of profit.
Is an S-corp a separate kind of business?
No. It is a tax status. An LLC that meets the tests can elect it with Form 2553, and a qualifying LLC does not also file Form 8832.
What is a reasonable salary for an S-corp owner?
The IRS has no fixed percent. It says the key is what the shareholder-employee did for the company. Our examples use 60% of profit only to show the math, so ask a tax professional about yours.
What extra paperwork does an S-corp add?
Payroll filings for your salary, a Form 1120-S return each year, and a Schedule K-1 for each shareholder. You report your share of the income on your personal return.
How do states treat S-corps?
States differ. Some add an S-corp or franchise tax that you would owe on top of the federal costs. Look up your state's rule with its tax agency before you elect.
When must I file Form 2553?
No more than 2 months and 15 days after the start of the tax year the election takes effect, or any time during the year before. The deadline guide has the worked dates.
Is this tax advice?
No. The numbers here are an estimate built from IRS rates, not tax advice. Vermilion Vitez gives general information only. Confirm your numbers with a CPA (certified public accountant) before you elect S-corp status.
Sources 7 links, opened November 5, 2026
- IRS Topic 554, Self-employment tax (12.4% + 2.9%, 92.35% of net earnings)
- IRS Topic 751, Social Security and Medicare withholding rates (6.2% and 1.45% each side; 2026 base $184,500)
- IRS Topic 560, Additional Medicare Tax (0.9% over $200,000 single, $250,000 joint, $125,000 separate)
- IRS, S corporation compensation and medical insurance issues (reasonable compensation)
- IRS, S corporations (eligibility tests, Form 1120-S, Schedule K-1, shareholders taxed at individual rates)
- IRS, Instructions for Form 2553 (when to file; no Form 8832 for an eligible entity)
- IRS, Limited liability company (default classification)
All rates and rules checked November 5, 2026. Educational, not legal or tax advice.