Business Entity Selection: LLC, S-Corp, C-Corp
The legal structure of your business is a tax planning decision that can save or cost you thousands of dollars per year.
Sole Proprietorship / Single-Member LLC
The simplest structure. All business income flows to your personal tax return. You pay self-employment tax on all net business income: 15.3% on the first $184,500 in 2026 and 2.9% above that. Filing is straightforward: Schedule C on your personal return.
S-Corporation
An S-Corp is a tax election, not an entity type. The key benefit: you split business income into a reasonable salary (subject to FICA/payroll taxes) and distributions (not subject to self-employment tax).
The bottom line
The S-Corp typically becomes beneficial when net business income exceeds $60,000-$80,000.
C-Corporation
C-Corps pay corporate tax (21% federal) on profits. Distributions to shareholders are taxed again as dividends - double taxation. However, C-Corps offer unique advantages for specific situations: certain fringe benefits are deductible by the corporation and not taxable to the employee-owner.
The Decision Framework
- Below $60,000 net income: Sole proprietorship/LLC is usually sufficient
- $60,000-$200,000: S-Corp election often makes sense
- Above $200,000: analysis becomes more complex - consider a tax professional
What would you do?
Alex's consulting business nets $150,000. She's currently a sole proprietor paying self-employment tax on the full amount.
Your Move
Calculate your current self-employment tax (net income × 15.3%, approximately). Then estimate what a 'reasonable salary' would be for your role. The difference between your net income and that salary is your potential SE tax savings from S-Corp election.
Sources
- Internal Revenue Service, Business Structures
Federal tax treatment of LLC, S corporation, and C corporation
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026