LLC or S-corp?

Josh

Josh Streimer, EA, is a partner at Venti Accounting, a Coral Springs, Florida firm offering proactive accounting, tax planning, payroll, and advisory services to small business owners throughout South Florida. As an Enrolled Agent, Josh is federally licensed to represent taxpayers before the IRS, and he leads the firm alongside his mother, Laura Streimer, having stepped into the family business and modernized how it serves clients. His focus goes beyond compliance: he helps growth-minded owners understand what their numbers are telling them so they can make better decisions year-round. Josh works with clients across industries, including medical professionals, real estate brokers, contractors, and IT companies.

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LLC vs. S-corporation is one of the most common and most misunderstood questions business owners ask.

These aren’t competing business structures, they serve different purposes.

Before deciding which is right for you, it’s important to understand what these terms actually mean and how they’re used.

LLC vs S-corporation: What Is the Difference?

A Limited Liability Company (LLC) is a legal entity created under state law. It provides liability protection and flexibility in how the business is taxed.

An S-corporation, on the other hand, is not a type of entity. It is a tax election made with the IRS. An LLC or even a corporation can choose to be taxed as an S-corporation if it meets certain requirements.

In simple terms:

LLC = legal structure
S-corporation = tax treatment

This distinction is where much of the confusion begins

How Taxes Differ

By default, a single member LLC is taxed as a sole proprietorship, and a multi member (entity with more than one owner) LLC is taxed as a partnership. In both cases, profits typically pass through to the owner’s personal tax return and are subject to self-employment tax. A sole proprietorship has the business activity directly reported on the personal return through a Schedule C. A Partnership files its own tax return (form 1065) to report the business activity, and produces a K-1 for each partner to report on their individual returns.

When an LLC elects S-corporation status, the taxation changes. The owner can split income into:

Reasonable salary (subject to payroll taxes)
Distributions (generally not subject to self-employment tax)

This structure can create tax savings in certain situations, but it also adds compliance and complexity, including payroll requirements and stricter rules to be followed.

Common Myths, Debunked

Myth #1: An S-corporation always saves you money on taxes

While S-corporations can reduce self-employment taxes, they also come with added costs such as payroll processing, accounting, and compliance. If your profit is relatively low, the tax savings may not outweigh the additional administrative expenses. Your tax professional should be able to provide you guidance on when to make an election.

Myth #2: You have to choose between an LLC and an S-corporation

This is one of the biggest misconceptions.

You do not choose one or the other. You typically form an LLC first and then decide whether to elect S-corporation status based on your financial situation.

Myth #3: S-corporations are only for large businesses

S-corporations are often beneficial for small and mid-sized businesses, especially once profits reach a level where tax savings become meaningful. Many local service businesses and professional firms in South Florida use this structure effectively to reduce their overall tax liability.

Myth #4: Forming an S-corporation protects you from liability

Liability protection comes from the legal entity, such as an LLC or corporation, not from the S-corporation election. The S-election only affects how the business is taxed. You should coordinate with your tax and legal professionals to determine the best structure for your business.

When Should You Consider an S-corporation Election?

There is no universal threshold, but many advisors suggest evaluating an S-corporation election once your business is generating consistent net income beyond what would be considered a reasonable salary.

This is highly dependent on your industry, your role in the business, and your overall tax picture. A one size fits all answer does not exist.

Making a decision

Choosing between an LLC and an S-corporation is less about picking one over the other and more about understanding how they work together. The right decision depends on your income level, growth plans, and willingness to handle additional compliance.

Before making any changes, it is important to speak with a qualified tax professional who understands both federal tax law and the local business environment here in Florida. For more information, we have provided a few references below.

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