What's the difference between an LLC and an S-Corp?
An LLC is a business structure (legal entity); an S-Corp is a tax classification. An LLC can elect S-Corp tax treatment to save on self-employment taxes once profits exceed roughly $40,000-50,000/year. Below that, a default LLC is usually better.
This is one of the most-confused topics for new business owners. The short answer: LLC is a business structure; S-Corp is a tax election — and an LLC can elect to be taxed as an S-Corp.
LLC (Limited Liability Company) — a state-level legal entity that gives owners (called members) limited liability protection. By default, single-member LLCs are taxed as sole proprietorships and multi-member LLCs as partnerships. All profits are subject to self-employment tax (15.3%) on top of income tax.
S-Corporation — a federal tax election (filed with IRS Form 2553). With an S-Corp election, owners pay themselves a 'reasonable salary' (subject to payroll taxes) and take the rest as distributions (no self-employment tax). This can save thousands per year — but only once profits are high enough to justify payroll overhead.
Rule of thumb: stay as a default LLC until your net profit exceeds $40,000-$50,000/year. Below that, S-Corp savings get eaten by payroll service costs ($600-1,200/year), increased accounting fees, and added complexity.
C-Corp is a separate option — best for startups raising venture capital, since investors generally require C-Corp structure.
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