How to Choose an LLC vs S-Corp for Taxes 2026
How to choose between an LLC and an S-Corp for taxes in 2026: self-employment tax, the S-Corp election, salary rules, and when each structure wins.
Entity choice is one of the biggest tax decisions a small business owner makes. The right structure can save thousands in self-employment tax. Here is how to decide between an LLC and an S-Corp in 2026.
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Default LLC Taxation
A single-member LLC is taxed as a sole proprietor: all net profit is subject to 15.3% self-employment tax.
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The S-Corp Election
An LLC can elect S-Corp status, splitting income into a reasonable salary (payroll-taxed) and distributions (not subject to SE tax).
When the S-Corp Wins
Generally once net profit reliably exceeds roughly $40,000-$60,000, the SE-tax savings outweigh added payroll and compliance costs.
The Costs of an S-Corp
Payroll processing, separate filings, and a reasonable salary requirement add complexity and expense.
Get the Details Right
The LLC & S-Corp Mastery Guide walks through the election and reasonable salary rules.
Tax Savvy for Small Business covers ongoing compliance.
FAQ
Is an S-Corp always better? No, only above an income threshold where savings beat costs.
Can I switch later? Yes, you can elect S-Corp status when it makes sense.
Conclusion
Run the numbers: if profit is consistently high, an S-Corp election can cut SE tax significantly.
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