An S-corp election can save self-employment tax — but only past a certain income, and only if you run payroll properly. Here's where the line is.
An LLC is a legal structure; an S-corp is a tax election. Many profitable LLCs elect to be taxed as an S-corp to reduce self-employment tax — but it only makes sense once your profit is high enough to justify the added complexity.
The reasonable-salary rule
As an S-corp owner, you pay yourself a reasonable W-2 salary (subject to payroll tax) and take the rest as distributions (not subject to self-employment tax). The savings come from that split — but the salary has to be defensible.
Roughly where it starts to pay
As a rule of thumb, the math often works once net profit clears about $60,000–$80,000. Below that, payroll costs, extra filings, and bookkeeping tend to eat the savings. We model your specific numbers before recommending the switch.
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