LLC vs S-Corp — Multi-Entity Owners
S-Corp saves ~15.3% SE tax on distributions above reasonable salary, but adds compliance cost. Breakeven is typically around $75-100K net income.
40-60% typical; below 40% draws IRS scrutiny
How the Comparison Works
Enter your total net business income, entity count, and state. The tool calculates federal tax impact under each structure and recommends based on your numbers.
1. LLC pass-through
SE tax on full net income up to SS wage base ($168,600), then 2.9% Medicare above. Minimal compliance beyond standard tax prep.
2. S-Corp election
Payroll tax on reasonable salary only; distributions avoid SE tax. Requires payroll service and additional tax prep.
3. Recommendation
Breakeven depends on income, state, and entity count. Results show dollar delta and qualitative factors.
Frequently Asked Questions
At what income does S-Corp make sense?
Roughly $75,000 net income is breakeven for most business owners. Below that, S-Corp compliance cost ($1,500-3,000/year) exceeds SE tax savings. Above $100,000, S-Corp almost always pays off.
What is a reasonable salary for S-Corp?
Typically 40-60% of total compensation. The IRS requires "reasonable" compensation for the work performed, scrutinized against BLS wage data. Paying $20K salary and distributing $180K triggers IRS reclassification with penalties.
Do multi-entity owners need an S-Corp per entity?
Usually not. Common structures: one S-Corp holding company owning operating LLCs, or each operating entity elects S-Corp separately. Consult a CPA specializing in multi-entity structures.
What states impose extra S-Corp taxes?
California ($800 + 1.5% on net income), New York (0.9% NYC UBT), Illinois (1.5% replacement tax), Tennessee (6.5% franchise tax). In these states, S-Corp breakeven income can rise to $100K+.
Can I switch from LLC to S-Corp later?
Yes. File Form 2553. The election is retroactive to tax year start if filed within 2.5 months; otherwise takes effect the following year. No need to restructure the LLC legally.
Does rental income qualify for S-Corp savings?
No — rental income is already passive and not subject to SE tax. S-Corp election on rental-only activity provides no SE tax savings. This is why most landlords stay in LLC structure.
Track Entity-Level Tax Impact
See projected SE tax, payroll, and distributions per entity updated in real-time as your books close.