LLC or S-Corp? The decision that actually moves your tax bill

The short version

An LLC is a legal structure; an S-Corp is a tax election you can layer on top of one. Plenty of business owners either make this election too early, and lose money to payroll and filing costs that outweigh the benefit, or wait too long after they're already leaving real savings on the table every year.

Where the confusion comes from

The math depends on your actual profit level, what a "reasonable salary" looks like for your role, and ongoing costs (payroll service, a separate business return, cleaner bookkeeping) that don't show up in a quick back-of-napkin estimate. Get the salary number wrong and it's not just a missed opportunity, an indefensibly low salary is one of the more common things that draws IRS scrutiny.

The mistakes we see most

• Electing S-Corp status before profit is anywhere near the level where it pays for itself.
• Setting a "reasonable salary" that's really just a number picked to minimize payroll tax, with nothing to back it up.
• Not budgeting for the ongoing costs, payroll service, a separate tax return, tighter bookkeeping, that come with the election.
• Missing the deadline to file the election paperwork for the year you wanted it to apply.

The honest answer

There's a real profit range where this election starts to make sense, and a real profit range where it doesn't yet, and it's specific to your numbers, not a flat rule of thumb.