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LLC vs S-Corp vs C-Corp
The right business entity at every income level — tax savings, liability, and compliance costs
LLC
Single-member or multi-member
VS
S-Corp
Pass-through with salary split
| Factor | LLC | S-Corp |
|---|
| Tax Treatment |
Pass-through (sole prop by default) |
Pass-through (salary + distribution split) |
| Self-Employment Tax |
15.3% on ALL net income |
15.3% only on reasonable salary portion |
| SE Tax Savings at $80k |
$0 (vs sole prop baseline) |
~$3,000–$6,000/year saved |
| SE Tax Savings at $150k |
$0 (vs sole prop baseline) |
~$8,000–$14,000/year saved |
| Annual Compliance Cost |
Minimal — just annual report ($50–$500/state) |
Higher — payroll, tax returns, ~$1,500–$3,000/yr |
| Recommended When |
Net income under $60k |
Net income over $60–80k |
| Owners Allowed |
Unlimited, any entity type |
≤100 shareholders, US citizens/residents only |
| VC/Investor Friendly |
No — investors prefer C-Corp |
No — investors strongly prefer C-Corp |
| Double Taxation |
No — pass-through |
No — pass-through |
| C-Corp Comparison |
Use for pass-through simplicity |
Use for pass-through + tax savings |
| C-Corp Notes |
21% flat rate; required for VC investment; double taxation on dividends |
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⚖️ The Verdict
For most solo founders and small businesses: start as an LLC, elect S-Corp tax treatment once net income consistently exceeds $60,000–80,000. The S-Corp election saves self-employment taxes (15.3% on the distribution portion) but adds compliance costs — payroll, separate business tax returns, and an accountant. The math typically favors S-Corp above $60–80k net income with ~$2,000–5,000 in annual savings above the compliance cost. C-Corp is only correct if you're raising VC/angel investment — institutional investors require it.