Business Entity Selection: LLC, S-Corp, C-Corp

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.

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-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.

• 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

Whichever structure you land on, forming an LLC or corporation means filing formation paperwork with your state and, in most states, naming a registered agent: the party that receives legal and state mail on the business's behalf. An S-Corp is a tax election you make after the entity exists, so it starts with the same formation step.