For a consultant or solo founder, the LLC and the S-corp are both pass-through structures with the same income-tax treatment. The difference is employment tax: the LLC (default taxation) pays 15.3% self-employment tax on all net profit, while the S-corp pays payroll tax only on the owner's W-2 salary. Above roughly $50,000 to $75,000 of profit, the S-corp's savings beat its extra costs.

Companion reading: our pillar guide Should You Be an LLC, S-Corp, or C-Corp? and the illustrative S-corp savings example.

The core trade-off

An LLC taxed by default keeps things simple: one Schedule C (or a partnership return), no payroll, no corporate return. The price of that simplicity is that every dollar of profit is hit with 15.3% self-employment tax (12.4% Social Security up to the $184,500 wage base for 2026, 2.9% Medicare on all of it), on top of your income tax.

An S-corp splits your earnings into salary and distributions. You must pay yourself reasonable W-2 compensation for the work you do, and that salary carries the same 15.3% in payroll taxes. Distributions carry no employment tax. You are buying employment-tax savings with payroll filings, an 1120-S return, and stricter discipline.

Side-by-side comparison

The numbers at three profit levels

Illustrative example. Assumptions: single owner, federal taxes only, no state tax, 2026 Social Security wage base of $184,500, salaries chosen as plausible reasonable compensation for a consultant (your actual salary must reflect your role, duties, and market rates). Compliance costs estimated at $1,500 to $3,000 per year.

Two patterns matter. First, the savings scale with profit while the compliance costs stay roughly flat, which is why the crossover sits around $50,000 to $75,000. Second, the savings compress at very high incomes: above the Social Security wage base, the marginal employment-tax rate drops to 2.9% (plus 0.9% additional Medicare over $200,000), so each extra dollar of distributions saves less. The S-corp still wins at high incomes, but the incremental benefit shrinks.

Income tax is deliberately left out of this table because both structures are pass-throughs: a dollar of profit faces your individual rates either way. (One nuance: the S-corp's W-2 wages reduce the QBI base for the 20% Section 199A deduction, so model salary and QBI together.)

Administrative burden, honestly assessed

The LLC asks almost nothing of you beyond good books and one tax return. The S-corp asks for a payroll system (or provider), quarterly Form 941 filings, annual Forms 940 and W-2, a March 15 Form 1120-S, and genuine separation between business and personal money. It also asks for discipline: the IRS can reclassify distributions as wages if your salary is unreasonably low, wiping out the savings plus penalties and interest.

For a consultant billing steadily, this is a few hours a quarter with a decent payroll provider. For someone with lumpy project income who hates paperwork, it is a real lifestyle cost. Price your own tolerance for administration into the decision.

Audit-risk profile

Neither structure is an audit shield, and neither is an audit magnet by itself. The specific risk with the S-corp is reasonable compensation: it is one of the IRS's best-known S-corp enforcement areas, with court cases upholding reclassification of distributions as wages. The defense is a documented salary analysis (see our reasonable salary guide), not a salary picked to maximize the tax saving.

The LLC's risk profile is different: Schedule C filers face scrutiny on expense substantiation and on the line between business and personal spending. Pick the structure for the economics, then run whichever you pick cleanly.

Who should pick which

Stay a default-taxed LLC if: profit is under ~$50,000, income is unpredictable, you have co-owners who cannot hold S-corp stock, or you simply will not run payroll reliably. You can always elect S status later.

Elect S-corp status if: net profit is consistently above ~$50,000 to $75,000, you are willing to run payroll and file the 1120-S, and you will set and document a defensible salary. Read S-corp election timing before you file.

Revisit annually if: profit crosses the threshold in either direction, you add owners, or your state changes its entity taxes. Entity choice is a multi-year posture, not a permanent tattoo, but switching has costs, so review it deliberately once a year.

Updated October 14, 2026.

This article is free educational content, not tax advice for your specific situation. If you want a plan built around your actual numbers, that is what our paid tax planning engagements do.