S-Corp vs. LLC: One Choice Could Save You Over $15,000 in Taxes (+ Free Calculator)

Choosing the right business structure is one of the most important decisions a small business owner will make — even though most founders don’t realize it at first. Between running operations, getting clients, and managing cash flow, taxes usually feel like something you’ll “figure out later.”

But here’s the truth:

Your entity type directly affects how much tax you pay — often by $10,000 to $15,000 or more each year.

The biggest differences come from how each structure treats profits, payroll, and self-employment taxes. Once you understand the mechanics, the savings become incredibly clear.

Let’s break it down in a simple, founder-friendly way.

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1. Tax Differences: LLC vs. S-Corp

Here’s the simplest way to understand the difference:

LLC (Default Taxation)

When you operate as a standard LLC (without electing S-Corp status):

• All business profit is considered self-employment income
• You pay self-employment tax (15.3%) on the entire profit amount
• Even if you don’t withdraw the money, the IRS still treats it as taxable income

This structure is simple — but often more expensive.

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S-Corp

When you elect S-Corp status, your profit is divided into two categories:

1. Salary (W-2 compensation)

You must pay yourself a reasonable salary, which is subject to:

• Federal income tax
• Social Security and Medicare taxes (15.3% combined)

2. Distributions

The remaining profit is taken as distributions. These are:

• Not subject to self-employment tax
• Only taxed as ordinary income

This is where the savings happen.

If half of your profit becomes distributions, that half avoids 15.3% SE tax — which is why the numbers add up quickly.

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Quick Example

If your business earns $120,000 in net profit:

• LLC: You pay 15.3% self-employment tax on all $120,000
• S-Corp: Only your salary (say $60k) is taxed at 15.3%

That alone creates thousands in savings every year.

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2. Salary vs. Distributions: The Real S-Corp Advantage

The “salary vs. distribution” split is the heart of the S-Corp tax benefit.

Here’s how it works:

Salary

• Must be “reasonable” based on your role
• Subject to Social Security and Medicare
• Reported on a W-2

Distributions

• The profit after salary
• Not subject to self-employment tax
• Often the larger portion for small businesses

A realistic scenario:

A business earns $100,000 in profit.

• Reasonable salary: $50,000
• Distributions: $50,000
• Only the $50k salary portion is subject to SE tax

That structure alone saves many founders $7,000 to $10,000 per year.

As the business grows, the savings grow too — which is how many founders reach the $15,000+ mark.

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3. Where the $15,000 Savings Come From (Self-Employment Tax)

Self-employment tax is 15.3%, and under an LLC, it applies to every dollar of your net profit.

Under an S-Corp, it applies only to your salary.

Here’s what that difference looks like with real numbers:

Example Based on $150,000 Net Profit

LLC (Default Taxation):

• $150,000 × 15.3% = $22,950 in self-employment tax

S-Corp (Salary $70k, Distributions $80k):

• $70,000 × 15.3% = $10,710

Annual Tax Savings: $12,240

If your profit is closer to $180k, $200k, or higher, the savings commonly exceed $15,000+ every single year.

This isn’t a rare scenario — it’s the norm for profitable small businesses.

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4. S-Corp Savings Calculator (Founder-Friendly)

Here’s a simple calculator structure you can embed or convert into an interactive widget on your website.

Step 1: Enter your net business profit

Examples: $80,000, $120,000, $150,000, $200,000

Step 2: The calculator will estimate:

• How much self-employment tax you’d pay as an LLC
• How much you’d pay after switching to an S-Corp
• Your estimated annual savings

Default assumptions (recommended for small businesses):

• Reasonable salary ≈ 40–60% of net profit
• The remainder is treated as distributions

Example Output

“Based on $120,000 in net profit, your estimated savings with an S-Corp structure is $9,180 per year.”

If you want, I can help you turn this into a real interactive calculator for uTaxes.com.

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5. When Should You Switch From an LLC to an S-Corp?

Not everyone needs to become an S-Corp on day one. The key is timing — and making the switch exactly when it becomes financially beneficial.

Here’s when it usually makes sense:

✔ Your annual net profit exceeds $60,000

Below this threshold, savings may not outweigh payroll and admin costs.

✔ Your business has stable, predictable income

Because you’ll need to run payroll consistently.

✔ You’re ready for more structured bookkeeping

S-Corps require clean financials — but uTaxes can manage that for you.

✔You want to reduce your total tax bill

This is the #1 reason founders switch.

✔ You’re comfortable using payroll software

Platforms like Gusto, ADP, or Paychex make this easy.

Most founders end up switching between year 1 and year 3 — once their revenue stabilizes.

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Final Thoughts: When You Switch Matters Just as Much as What You Choose

Choosing between an LLC and an S-Corp can dramatically impact your tax bill and your take-home pay — but the real secret is knowing when the switch actually makes financial sense.

Wondering when an S-Corp actually starts saving you money? That’s where we come in. At uTaxes, we help founders choose the right moment — not too early, not too late — for the biggest tax payoff.