S Corp vs. LLC: Which Makes the Most Sense for Your Business?
Choosing the right business structure is one of the most important financial decisions you’ll make as a business owner. Two of the most common options for small businesses are the Limited Liability Company (LLC) and the S Corporation (S Corp) — but which one is right for you?
Let’s break down the key differences and help clear up the confusion.
LLC: Simple Structure, Flexible Ownership
An LLC provides liability protection for its owners (called “members”) and is known for its simplicity. By default, a single-member LLC is taxed as a sole proprietorship, while a multi-member LLC is taxed as a partnership.
Pros of an LLC:
Simple setup and maintenance
Flexible profit distribution
Liability protection
Pass-through taxation (income flows to your personal tax return)
Cons of an LLC:
Subject to self-employment tax on full profits
May not maximize tax savings for higher-earning owners
S Corp: Tax Strategy for Growing Businesses
An S Corp is not a business entity type — it’s a tax election that an LLC or corporation can make. The S Corp structure allows you to take part of your income as payroll (subject to payroll taxes) and the rest as distributions (not subject to self-employment tax).
Pros of an S Corp:
Potential self-employment tax savings
Owners can be employees, receiving a reasonable salary
Pass-through taxation avoids corporate double-taxation
Cons of an S Corp:
More paperwork and payroll requirements
IRS expects owners to pay themselves a "reasonable" wage
Not ideal for businesses with passive income or complex ownership structures
Which One Is Right for You?
If you’re just getting started or your business income is modest, an LLC may be the easiest choice. If your business is profitable and you’re paying high self-employment taxes, an S Corp election could provide significant tax savings.
The best structure depends on your income, goals, and business type — and sometimes the right move is to start as an LLC and elect S Corp status later.
Wrapping It Up
Your business structure impacts how much tax you pay and how protected your personal assets are. Don’t guess your way through it — get the right advice upfront.
Not sure which option is best for your business? Wrap Up Bookkeeping can help you understand your options and set up your business for success. Contact us today to schedule a consultation!
