When should I switch from LLC to S-Corp?

Generally, an S-Corp election makes sense when your net business income exceeds $80,000-$100,000 annually. At this point, the self-employment tax savings typically outweigh the additional administrative costs of running an S-Corp (payroll, separate tax returns, etc.).

Can an LLC elect S-Corp status?

Yes! This is actually the most common approach. You can form an LLC for liability protection and then file Form 2553 with the IRS to be taxed as an S-Corporation. This gives you the flexibility of an LLC with the tax benefits of an S-Corp.

What is a 'reasonable salary' for an S-Corp?

The IRS requires S-Corp shareholders who work in the business to pay themselves a 'reasonable salary' based on what similar positions pay in your industry and area. Typically, this is 40-60% of net profits, but it varies by industry and role.

What are the downsides of an S-Corp?

S-Corps require more administrative work: running payroll, filing separate tax returns (Form 1120-S), maintaining corporate formalities, and ensuring reasonable compensation. These costs typically run $1,500-$3,000+ annually.

Does Florida have different rules for LLCs vs S-Corps?

Florida is tax-friendly for both structures since there's no state income tax on individuals. However, S-Corps must pay Florida's corporate tax if they have certain types of income. LLCs in Florida file an annual report ($138.75) while S-Corps also need to file state returns.

Business Structure Comparison

LLC vs S-Corp: Which Saves You More in Taxes?

Use our interactive calculator to see exactly how much you could save by electing S-Corp status. Compare structures side-by-side and make an informed decision.

S-Corp Tax Savings Calculator

Annual Net Business Income

Your profit after business expenses

Reasonable S-Corp Salary

Typically 40-60% of net income

LLC Self-Employment Tax

$21,194

S-Corp Payroll Tax

$11,475

Your Annual Savings

$9,719

Recommendation: With potential savings of $9,719/year, an S-Corp election likely makes sense for your business. This typically offsets the additional administrative costs.

How this is calculated. Self employment tax under IRC 1401 on 92.35% of net earnings. Social Security at 12.4% up to the 2026 contribution and benefit base of $184,500 (Social Security Administration), Medicare at 2.9% with no cap. S corporation payroll tax under IRC 3101 and 3111 on the salary only.

What it does not model. The additional Medicare tax of 0.9% above $200,000 single and $250,000 joint, because this tool does not ask your filing status. It also ignores state tax, the qualified business income deduction under IRC 199A, and payroll administration cost. A salary that is not reasonable compensation is a separate risk that no calculator can price.

This is an estimate from the figures you entered. It is not tax advice and not a promise of a result.

Side-by-Side Comparison

Key differences between LLC and S-Corp structures

Feature	LLC	S-Corporation
Tax Treatment	Pass-through (Schedule C)	Pass-through (Form 1120-S)
Self-Employment Tax	On all net income	Only on salary (not distributions)
Setup Complexity	Simple, minimal paperwork	Requires S-Corp election (Form 2553)
Ongoing Requirements	Annual report (varies by state)	Payroll, separate returns, board minutes
Liability Protection	Yes - personal assets protected	Yes - personal assets protected
QBI Deduction (20%)	Available (income limits apply)	Available (income limits apply)
Payroll Required	No (unless employees)	Yes - reasonable salary required
Best For Income	Under $80K net profit	Over $80K-100K net profit

Tax Treatment

LLC

Pass-through (Schedule C)

S-Corp

Pass-through (Form 1120-S)

Self-Employment Tax

LLC

On all net income

S-Corp

Only on salary (not distributions)

Setup Complexity

LLC

Simple, minimal paperwork

S-Corp

Requires S-Corp election (Form 2553)

Ongoing Requirements

LLC

Annual report (varies by state)

S-Corp

Payroll, separate returns, board minutes

Liability Protection

LLC

Yes - personal assets protected

S-Corp

Yes - personal assets protected

QBI Deduction (20%)

LLC

Available (income limits apply)

S-Corp

Available (income limits apply)

Payroll Required

LLC

No (unless employees)

S-Corp

Yes - reasonable salary required

Best For Income

LLC

Under $80K net profit

S-Corp

Over $80K-100K net profit

Which is Right for You?

Quick decision guide based on your situation

Stick with LLC if...

Net income is under $80,000/year

You want minimal administrative burden

Income fluctuates significantly

You're a real estate investor (passive)

Elect S-Corp if...

Net income exceeds $80,000-$100,000/year

You're comfortable running payroll

Income is stable and predictable

You want to maximize retirement contributions

Frequently Asked Questions

Common questions about LLC and S-Corp structures

Need Help Deciding?

Our tax professionals can analyze your specific situation and recommend the best structure for your business. Get personalized advice based on your income, industry, and goals.

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