S corp vs LLC: which one should you choose?

• LLC (default): all profit is subject to self-employment tax (about 15.3% on most of it).
• S corp election: you pay yourself a reasonable salary through payroll. Only the salary carries payroll tax; the remaining profit is taken as distributions without it.

Say your business nets $120,000 and a reasonable salary for your role is $60,000.

• As a default LLC: roughly $17,000 in self-employment tax.
• As an S corp: roughly $9,200 in payroll tax on the $60,000 salary.
• Gross difference: about $7,800 a year, minus payroll service, extra bookkeeping and a separate business tax return, often $1,500 to $3,000.

Figures are simplified estimates; state taxes and fees vary.

• Profit is low or uneven.
• You want the simplest bookkeeping.
• Your state charges heavy fees or taxes on S corps.

Atrium's Business Entity Architect compares both setups using your real profit, salary and state, and lists what to confirm with a CPA before you file.

Is an S corp better than an LLC?

Neither is better for everyone. An LLC is a legal structure; an S corp is a tax election. Many owners form an LLC and later elect S corp taxation once profit is high enough that payroll-tax savings outweigh the extra payroll and filing costs.

When does an S corp election start to make sense?

A common rule of thumb is when net profit is consistently well above what you would pay yourself as a reasonable salary, often somewhere around $40,000 to $80,000 of profit or more. Below that, added payroll, bookkeeping and tax-return costs can cancel the savings.

Can an LLC be taxed as an S corp?

Yes. An eligible LLC can elect S corp status with the IRS using Form 2553, while staying an LLC under state law.

What is a reasonable salary for an S corp owner?

The IRS expects owners who work in the business to pay themselves wages comparable to what the business would pay someone else for the same work. Setting it too low is a common audit risk.