Is an S-corp a different type of company than an LLC?

No. An S-corp is not a type of legal entity — it's a tax classification you request from the IRS by filing Form 2553. Your company is still an LLC (or a corporation) under state law; the S election only changes how the IRS taxes its profits.

Can an LLC be taxed as an S-corp?

Yes. An LLC that meets the eligibility rules (U.S. owners, 100 or fewer shareholders, one class of ownership interest) can file IRS Form 2553 and be taxed as an S corporation while remaining an LLC under state law. This is the most common way founders "become an S-corp."

How much does an S-corp election actually save?

Roughly 15.3% of whatever profit you can legitimately take as distributions instead of salary, minus the payroll and tax-prep overhead the election adds. For example, on $100k of profit with a $60k reasonable salary, about $40k shifts out of self-employment tax — worth around $5k a year before overhead. Below roughly $60–80k of consistent profit, the overhead tends to eat the savings.

What counts as a reasonable salary?

What you'd have to pay someone else to do your job — the IRS looks at factors like your role, hours, experience, and what comparable businesses pay for similar work. Paying yourself a token salary and taking everything else as distributions is the classic audit trigger, and the IRS can reclassify distributions as wages, with back taxes and penalties.

When do I have to file Form 2553?

Generally within 2 months and 15 days of the start of the tax year you want the election to take effect — for a new company, that clock starts when it's formed. Miss the window and the election normally starts the following year, though the IRS grants late-election relief fairly routinely when you have a reasonable cause.

Comparison

LLC vs S-Corp: which should you choose?

Last updated: July 2026

"LLC vs S-corp" is the most-asked question in business formation — and it's a trick question. An S-corp isn't a different kind of company you form instead of an LLC. It's a tax election: a status you request from the IRS (Form 2553) that changes how your profits are taxed. An LLC can elect it. The real question isn't "LLC or S-corp?" — it's "should my LLC keep its default taxation, or elect S-corp taxation?" This guide answers that one.

The one thing to understand first

Two different layers are in play:

Legal entity (state layer). The LLC. It's what you form with your state, and it's what gives you liability protection — your personal assets separated from the business. This layer doesn't change no matter how you're taxed.
Tax classification (IRS layer). By default, the IRS taxes a single-member LLC like a sole proprietorship and a multi-member LLC like a partnership. Filing Form 2553 swaps that default for S-corporation taxation. Same LLC, same liability protection, different tax math.

So when LegalZoom-style sites show "LLC vs S-corp" as two columns of different entities, they're comparing apples to a tax status. Either way, you usually form an LLC first — the election is a one-page form you can add later, when the numbers justify it.

How a default LLC is taxed

A default LLC is a pass-through: the business pays no federal income tax itself. Profits flow onto your personal return, and you pay two things on them:

Ordinary income tax, at your personal bracket.
Self-employment tax: 15.3% — 12.4% Social Security (up to the annual wage base, $184,500 in 2026) plus 2.9% Medicare — applied to essentially all of your net profit (technically 92.35% of it). This is the employer and employee halves of payroll tax, combined, because you're both.

The pain point: self-employment tax hits every dollar of profit, whether or not you took the money out of the business. $100,000 of profit means roughly $14,000 of self-employment tax before income tax even starts. The upside is simplicity — no payroll, no separate business return for a single-member LLC, nothing to maintain.

What the S-corp election changes

With S-corp taxation, your profit gets split into two streams:

A reasonable salary you pay yourself through actual payroll. This is subject to payroll taxes — the same 15.3%, just collected as employer + employee shares on a W-2.
Everything above the salary, taken as distributions. Distributions are still subject to income tax — but not self-employment or payroll tax. That's the whole trick.

Concretely: $100,000 of profit as a default LLC → 15.3% applies to essentially all of it. Same $100,000 with an S election and a $60,000 reasonable salary → payroll tax applies to the $60,000, and the remaining $40,000 of distributions escapes it. That's roughly $5,000/year saved — before the overhead below.

The catch: reasonable salary and real overhead

If the salary could be $0, everyone would do this. It can't. The IRS requires S-corp owner-employees to take reasonable compensation — roughly what you'd pay someone else to do your job — before taking distributions, and it actively audits for token salaries. Set it too low and the IRS can reclassify your distributions as wages and bill you the back payroll taxes plus penalties.

The election also adds standing costs a default LLC doesn't have:

Payroll — you must run it, even as a company of one. A payroll service is typically $50–100/month.
A separate business tax return (Form 1120-S), which usually means higher tax-prep fees, plus quarterly payroll filings.
Less flexibility — S-corps require proportional distributions and a single class of ownership, which can matter later with partners or investors.

Put the savings against the overhead and you get the standard rule of thumb: the election starts paying for itself when your profit consistently clears roughly $60,000–80,000 a year. Below that, the overhead eats the savings; well above it, the savings compound. It's a rule of thumb, not advice — where the line sits for you depends on your reasonable salary and your state, so run the numbers with a tax professional before electing.

One state-level footnote: a few states tax S-corps directly (California charges 1.5% of net income, for instance) or don't fully recognize the federal election, so the savings math varies by state — check yours before filing the form.

Side by side

	Default LLC	LLC + S-corp election
What it is, legally	An LLC — a state-law entity	The same LLC, with an IRS tax status
Federal tax return	Schedule C (single-member) or Form 1065 (multi-member)	Form 1120-S + a W-2 for your salary
Self-employment tax	15.3% on essentially all net profit	Payroll taxes on your salary only
Profit above salary	Still self-employment income	Distributions — no SE/payroll tax
Payroll required	No	Yes — a reasonable salary, run through payroll
Admin overhead	Minimal	Payroll service (~$50–100/mo) + a separate business tax return
Usually worth it when	Profit is modest or unpredictable	Profit consistently clears roughly $60–80k

What this means when you're forming

The practical takeaway: this isn't a decision you have to make on day one. Form the LLC now — that's the layer with a filing deadline attached to your actual business — and add the S election later, once profits make it worth the overhead. The election is a one-page IRS form with its own timing window (see the FAQ), and electing in a later year is completely normal.

FilingDesk forms your LLC for a flat $99 plus your state's fee — name check, state filing, EIN, and operating agreement handled in one conversation — and the Complete plan includes S-corp election assistance when you're ready. We're live in Wyoming, Florida, and Delaware today.

Frequently asked questions

Is an S-corp a different type of company than an LLC?: No. An S-corp is not a type of legal entity — it's a tax classification you request from the IRS by filing Form 2553. Your company is still an LLC (or a corporation) under state law; the S election only changes how the IRS taxes its profits.
Can an LLC be taxed as an S-corp?: Yes. An LLC that meets the eligibility rules (U.S. owners, 100 or fewer shareholders, one class of ownership interest) can file IRS Form 2553 and be taxed as an S corporation while remaining an LLC under state law. This is the most common way founders "become an S-corp."
How much does an S-corp election actually save?: Roughly 15.3% of whatever profit you can legitimately take as distributions instead of salary, minus the payroll and tax-prep overhead the election adds. For example, on $100k of profit with a $60k reasonable salary, about $40k shifts out of self-employment tax — worth around $5k a year before overhead. Below roughly $60–80k of consistent profit, the overhead tends to eat the savings.
What counts as a reasonable salary?: What you'd have to pay someone else to do your job — the IRS looks at factors like your role, hours, experience, and what comparable businesses pay for similar work. Paying yourself a token salary and taking everything else as distributions is the classic audit trigger, and the IRS can reclassify distributions as wages, with back taxes and penalties.
When do I have to file Form 2553?: Generally within 2 months and 15 days of the start of the tax year you want the election to take effect — for a new company, that clock starts when it's formed. Miss the window and the election normally starts the following year, though the IRS grants late-election relief fairly routinely when you have a reasonable cause.

This guide is general information, not legal or tax advice. FilingDesk is not a law firm or an accounting firm — talk to a professional about your specific situation.