LLC vs S-Corp Taxes: Choosing the Right Structure as You Scale

An LLC is easy to set up and simple to run. That simplicity has a cost once your income starts to grow.

At a certain point, staying an LLC by default can mean paying more self-employment tax than necessary.

How LLC Taxes Work by Default

A single-member LLC is taxed as a sole proprietorship. All net profit is subject to self-employment tax, currently 15.3%, on top of income tax.

As profit rises, that self-employment tax rises right alongside it, with no cap based on how the business actually pays you.

What Changes With an S-Corp Election

Electing S-Corp status lets you pay yourself a reasonable salary, subject to payroll tax, while remaining profit can be distributed without self-employment tax.

For profitable businesses, this split can meaningfully reduce the total tax owed each year.

When the Switch Is Actually Worth It

• Net profit consistently exceeds a reasonable salary for your role

• You can support the added cost of running payroll

• Your books are clean enough to support a defensible salary figure

Where Business Owners Get This Wrong

Setting the salary too low invites IRS scrutiny. Setting it too high erases the tax benefit you elected S-Corp status for in the first place.

Getting that number right takes a real look at your income, your industry, and your role in the business.

The right structure depends on your numbers, not a general rule of thumb.

Exemplary reviews your income and structure to tell you clearly whether an S-Corp election will actually save you money, and helps you make the switch correctly.