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 →
