Is an LLC or S-Corp better for my business?

An LLC is better for most new businesses due to its simplicity and flexibility, while S-Corp election becomes advantageous once your net profit exceeds approximately $40,000-$50,000 per year. The S-Corp is not a separate entity type — it is a tax election that an LLC can make to reduce self-employment taxes.

With a standard LLC, you pay 15.3% self-employment tax on all net profits. With S-Corp election, you pay yourself a reasonable salary (subject to payroll taxes) and take remaining profits as distributions (not subject to self-employment tax). Example: If your LLC earns $100,000 net profit, you pay $15,300 in SE tax. With S-Corp election and a $50,000 salary, you pay $7,650 in payroll taxes on the salary and $0 SE tax on the $50,000 distribution — saving $7,650. The breakeven point accounts for the additional cost of payroll processing ($500-$2,000/year).