LLC vs S Corp: Which One Actually Saves You More on Taxes?
Most business owners pick their business structure the same way they pick a streaming service. Quick, random, and without reading the fine print.
But the difference between an LLC and an S Corp isn’t just paperwork. It can mean thousands of dollars in extra taxes every single year… or savings, if you choose wisely.
So let’s break this down in plain English.
What an LLC Actually Is (and Isn’t)
An LLC — Limited Liability Company — gives you legal protection. It separates your personal assets from your business, which is crucial if things ever go sideways.
But when it comes to taxes, an LLC is flexible. You can be taxed as:
A sole proprietor (the default for one owner)
A partnership (if there’s more than one owner)
Or an S Corp, if you choose to be taxed that way
That last point trips up a lot of people. “LLC vs S Corp” isn’t really a fair fight, because the S Corp isn’t a new business type. It’s a tax status you can choose for your LLC.
How an S Corp Saves You Money
Here’s the magic trick that makes S Corps popular: you can split your income into two buckets.
W-2 wages —> you pay payroll taxes on this.
Owner distributions —> you don’t pay self-employment tax on this.
Example time:
Say your business brings in $120,000 in profit.
If you’re a regular LLC, you pay self-employment tax (about 15.3%) on all of it.
If you’re an S Corp, you might pay yourself a $70,000 salary and take $50,000 as distributions.
That move alone can save you $7,000 or more in payroll taxes.
Of course, it only works if you pay yourself a reasonable salary, the IRS watches that part closely.
When It Makes Sense to Switch
The S Corp setup shines when:
Your business nets $70K–$100K+ in profit each year
You can justify a fair salary for your role
You’re comfortable (or have help) running payroll and filing the extra forms
If that sounds like you, the S Corp might be the next smart move for cutting taxes.
When to Stick with a Simple LLC
An LLC is often better when you’re still in the early stages.
If your income is low, unpredictable, or you’re just testing your business model, the simplicity of an LLC keeps life easy.
You can always switch later. The IRS lets you elect S Corp status once the numbers make sense.
How to Make the Switch
If you decide to go for it, you’ll file Form 2553 with the IRS.
It’s best to do this early in the year, and it’s something a bookkeeper or tax professional can handle for you.
Once the election is approved, you’ll start paying yourself through payroll and tracking your owner distributions separately.
The Bottom Line
Choosing between an LLC and an S Corp isn’t about the fancy title. It’s about keeping more of your hard-earned money.
The S Corp can be a real tax-saver when your business profits are steady, but it’s not worth the extra admin if you’re just starting out.
Not sure which structure fits your business best?
At Red Leaf Bookkeeping, we help small business owners set up and manage their S Corps the right way, with clean books, proper payroll, and tax-ready reports that keep more money in your pocket and less in Uncle Sam’s.