Sole proprietor vs LLC vs S-Corp — which structure saves you the most?
What is this? The way you structure your business dramatically changes your tax bill. A sole proprietor pays SE tax on ALL profits. An S-Corp lets you split profits into "reasonable salary" (taxed as W-2) and distributions (NOT subject to SE tax). This can save $10,000-$50,000+ per year at high incomes.
Who it's for: Freelancers, consultants, and small business owners earning $80,000+ in net profits who are deciding whether to elect S-Corp status.
Warning: S-Corp requires real payroll and "reasonable compensation" rules. Ask an accountant before making the election.
Business Income
Structure Comparison
StructureSE TaxIncome TaxTotal Tax
Tax Savings by Structure
LLC Saves vs Sole Prop
—
minimal difference
S-Corp Saves vs LLC
—
when salary = $80K
Total Saved w/ S-Corp
—
vs sole proprietor
For educational comparison only. "Reasonable compensation" for S-Corp must be defensible to the IRS. Requires payroll setup (~3% additional employer taxes). Consult a CPA.