Should my business be an LLC or an S corp?

For most new businesses, start as a plain LLC, and look at the S corp choice once the business makes a steady profit. The two are not rivals. An LLC is how the business is set up under state law, and an S corporation is a way of being taxed, so plenty of businesses are both.

What is an LLC?

A limited liability company is a legal structure you set up with the state. It keeps the business separate from you personally, which is the main reason owners choose it. On its own, it does not decide how the business pays tax.

What is an S corporation?

It is a tax choice you make with the IRS, on Form 2553. The business does not pay federal income tax itself. Instead, its profit passes through to the owners' personal returns. Owners who work in the business must pay themselves a reasonable salary, and the rest can come out as distributions.

That split is where the saving comes from. Salary carries Social Security and Medicare tax. Distributions do not. The IRS requires a reasonable salary so owners cannot call everything a distribution.

When does the S corp choice make sense?

Usually once the business makes a steady profit, well beyond what you would pay yourself as a fair salary. Below that point, the extra payroll and filing work can cost more than you save. Payroll means pay stubs, withholding and regular filings for your own salary. None of it is hard, but it is not free, and it has to be done on time. There is no single number that works for everyone, which is why we run the figures for your business before we suggest it.

Can you change later?

Yes. Many owners start as a plain LLC and add the S corp choice once profits grow. The timing of the election matters, so plan it before the tax year you want it to start, not in the middle of tax season.

It is worth checking again each year. If profits drop, the S corp choice can stop paying for itself, and a quick review tells you whether it still fits.