S corp or LLC: when the switch actually saves money
An S corp election can cut self-employment tax, but it adds payroll and paperwork. Here’s how to tell whether the math works for you.
The short answer
An LLC is a legal structure; an S corp is a tax election. Electing S corp status can lower self-employment tax because you pay payroll tax only on a reasonable salary, not on all profit. It tends to pay off once profit is comfortably above that salary and the savings beat the extra payroll and filing costs.
Structure versus election
An LLC is created under state law and protects your personal assets. By default a one-owner LLC is taxed like a sole proprietorship. An S corp election (Form 2553) changes how the business is taxed, not what it is legally.
Where the savings come from
As a sole proprietor you pay 15.3% self-employment tax on most of your profit. As an S corp owner, you pay yourself a salary through payroll, and payroll taxes apply to that salary. Profit taken out as distributions above the salary isn’t subject to payroll tax.
The reasonable salary rule
The IRS expects your salary to be in line with what you’d pay someone else to do your job. Setting it too low is one of the most common reasons S corps get audited.
The extra costs
You’ll run payroll, file a separate S corp return (Form 1120-S, due March 15 for calendar-year companies) and may pay state fees or franchise taxes. Those costs come off your savings.
Timing
To apply to a calendar year, file Form 2553 by March 15 of that year (within two months and 15 days of the start of the tax year). Late-election relief is sometimes available.
Questions
Can a single-member LLC be an S corp?
Yes. A single-member LLC can elect S corp tax treatment by filing Form 2553, as long as it meets the S corp requirements.
Should I be an S corp?
Run your numbers through our S corp savings estimator first. If the estimated savings are clearly larger than the extra payroll and filing costs, it’s worth a conversation with a CPA.
Your situation isn’t general. A CPA can tell you how this applies to you.
Ask about thisGeneral information as of October 2026, not advice for your situation. Tax rules change; check with a professional before acting.