S-Corp vs. LLC: when the switch actually saves you money
The income threshold that makes electing S-Corp status worth the extra paperwork.
LLCs are taxed by default as sole proprietorships (single-member) or partnerships (multi-member). All net income flows through and is subject to 15.3% self-employment tax.
When S-Corp election helps: once you can pay yourself a 'reasonable salary' and still have meaningful profit left over, S-Corp status lets you take that excess as a distribution — free of self-employment tax. Most planners draw the line around $50K–$80K of net profit, depending on your industry and salary requirements.
The catch: payroll, an extra tax return ($1,500–$2,500/yr), and reasonable-comp scrutiny from the IRS. Run the numbers — don't elect just because someone said you should.
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