LLC vs S-Corp

Is the LLC or S-Corp Better For You?

Key differences you should know between the two entities

We are often asked “Which is better, the LLC or s-corporation?” 8 times out of 10 a small business will choose the LLC over the s-corporation, but you can have both.

Terminology

“S-corporation” is the term typically used to describe a regular corporation that has timely filed Form 2553 (aka the “S Election”). The filing of the S Election informs the IRS that the corporation desires to be taxed under Subchapter S of the Internal Revenue Code and effectively converts an c-corporation to an s-corporation.

The LLC Can Be Taxed As An S-Corp

An LLC can also elect to be taxed as an s-corporation by filing the same Form 2553. There are restrictions on whether or not a business (LLC or corporation) can elect to be taxed as an s-corporation.

Tax Savings

An entity (corporation or LLC) that is taxed as an s-corporation has certain tax advantages. The key tax advantage (as of the writing of this webpage) is the ability to reduce your self-employment tax burden.

To take advantage of the tax savings attributable to the s-corporation status, the entity will have to pay its owner(s) a salary. Because running payroll creates many additional administrative tasks, the S Election may not make sense for an entity that would otherwise not have employees.

More Information:

Why would an LLC want to be taxed as an S Corporation?
S-Corp Restrictions and Limitations
Compare LLCs and Corporations
Side-By-Side Entity Comparison Chart
Please note that tax issues are complex and we are business formation attorneys, not tax specialists. As such, we must recommend that you consult a tax professional if you have specific questions or special circumstances. According to IRS Circular 230 to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this writing was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.