LLC or S-Corp? Choosing the Right Structure Before Liftoff
By Matan Goren, CPA-Candidate · 2026-08-20
The right entity can save you thousands in self-employment tax — or cost you more in complexity than it saves. Here's a clear-eyed comparison.
One of the most common questions we hear from small business owners is whether they should stay a sole proprietor or LLC, or make the S-corp election. The honest answer: it depends on your profit level — but there are clear thresholds where the math starts working.
The default: sole proprietor or single-member LLC
Below roughly $40,000–$50,000 in annual profit, the simplicity of a sole proprietorship or single-member LLC usually wins. You report everything on Schedule C, and after paying self-employment tax and income tax, you're done. An LLC adds liability protection with almost no extra tax complexity.
Where the S-corp starts to shine
An S-corp splits your income into two parts: a reasonable salary (subject to payroll taxes) and distributions (which avoid self-employment tax). Once consistent profits exceed the salary you'd reasonably pay yourself, the savings can be meaningful — often several thousand dollars a year at $80,000–$100,000 of profit.
The costs people forget
- Payroll service fees and quarterly payroll filings
- A separate S-corp tax return (Form 1120-S) each year
- Bookkeeping discipline to keep salary and distributions clean
The bottom line
Structure is a moving target: what's right at $30,000 of profit is wrong at $130,000. It's worth revisiting your election every year or two. A consultation can walk through your specific numbers and tell you exactly where the break-even sits for you.