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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

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

⚖️ 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.

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