LLC vs S-Corp: Which Saves More on Taxes? (Real Numbers)

If you earn decent money through your LLC, someone has probably told you to "elect S-Corp status" to save on taxes. The advice is everywhere — from accountants, YouTube, Reddit, and formation services. But is it actually worth it? Let's run the real numbers.

The Basic Concept

As a single-member LLC (default tax treatment), all of your net profit is subject to self-employment tax — that is 15.3% covering Social Security (12.4%) and Medicare (2.9%). This is on top of your regular income tax.

With S-Corp election, you split your income into two buckets:

1. Salary — subject to payroll taxes (same 15.3%)
2. Distributions — NOT subject to self-employment tax

The key: you must pay yourself a "reasonable salary" for the work you do. The rest can be taken as distributions, saving you 15.3% on that portion.

Real Number Examples

Scenario 1: $80,000 Net Profit

Default LLC:

• Self-employment tax: $80,000 x 15.3% = $12,240
• Income tax (24% bracket): ~$12,600
• Total tax: ~$24,840

S-Corp (salary $50K, distributions $30K):

• Payroll tax on salary: $50,000 x 15.3% = $7,650
• Income tax on all $80K: ~$12,600
• Payroll processing costs: ~$1,200/year
• Extra tax prep: ~$800/year
• Total: ~$22,250

S-Corp savings: ~$2,590/year. After accounting for the additional costs of running payroll and filing an S-Corp tax return, the savings are modest.

Scenario 2: $150,000 Net Profit

Default LLC:

• Self-employment tax: ~$21,068 (Social Security caps at $168,600 in 2026)
• Income tax: ~$26,000
• Total: ~$47,068

S-Corp (salary $70K, distributions $80K):

• Payroll tax on salary: $70,000 x 15.3% = $10,710
• Income tax on all $150K: ~$26,000
• Payroll + tax prep: ~$2,000
• Total: ~$38,710

S-Corp savings: ~$8,358/year. Now we are talking meaningful money.

Scenario 3: $40,000 Net Profit

Default LLC: Self-employment tax of $6,120 plus income tax.

S-Corp: After paying yourself a reasonable salary of $35K+ and adding payroll/tax prep costs, the S-Corp likely costs you more than it saves.

The $50K Threshold Rule of Thumb

Most accountants suggest S-Corp election starts making sense when your LLC net profit exceeds $50,000–$60,000. Below that, the additional costs of payroll processing, quarterly tax filings, and S-Corp tax returns eat into or eliminate any savings.

Hidden S-Corp Costs

• Payroll service: $30–$150/month (Gusto, ADP, etc.)
• S-Corp tax return (Form 1120-S): $500–$1,500 from a CPA
• Quarterly payroll tax filings: Included in payroll service or $50–$100 extra
• Reasonable salary determination: If audited, you need documentation supporting your salary level

The Verdict

S-Corp election is a powerful tax tool for LLC owners earning $60K+ in profit. But it is not free money — it comes with real costs and complexity. Run the numbers with your specific income before making the switch.

Ask Sedes about your tax situation — our AI can help you estimate whether S-Corp election makes sense for your income level.