By Ziv Shay | Updated April 2026
Compare S Corp vs LLC: taxes, liability, formation costs, and compliance. Take our quiz to find the right business structure for your situation in 2026.
| Feature | S Corporation | LLC |
|---|---|---|
| Self-Employment Tax | Only on salary (not distributions) | On all net income (15.3%) |
| Formation Complexity | More complex (articles + bylaws + election) | Simple (articles of organization) |
| Ongoing Compliance | Corporate formalities, minutes, reports | Minimal requirements |
| Ownership Restrictions | Max 100 shareholders, US citizens only | No restrictions |
| Profit Distribution | Must pay reasonable salary first | Flexible (any distribution ratio) |
| Tax Filing | Form 1120-S | Schedule C or Form 1065 |
| Best For | Profitable businesses ($50K+ net income) | New businesses / flexibility seekers |
| S Corporation | LLC | |
|---|---|---|
| Net Business Income | $120,000 | $120,000 |
| Reasonable Salary | $60,000 | N/A (all is SE income) |
| Distribution / Remaining | $60,000 (no SE tax) | N/A |
| Self-Employment Tax (15.3%) | $9,180 (on salary only) | $18,360 (on all income) |
| Annual Tax Savings | Baseline | $0 — pays $9,180 more |
Yes! You can form an LLC and file Form 2553 to elect S Corp tax treatment. This gives you the simplicity of an LLC with the tax benefits of an S Corp.
Generally when your net income exceeds $50,000-$60,000/year and the self-employment tax savings outweigh the additional payroll and compliance costs (~$1,000-$2,000/year).
The IRS requires S Corp owners to pay themselves a salary comparable to what similar roles pay in the industry. Underpaying your salary to avoid taxes is a major IRS audit trigger.
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