LLC or S-Corporation: Which Business Structure is Right for You?

Publications Apr 25, 2025

Choosing the right business structure is a crucial step for solo entrepreneurs and small business owners. It not only helps protect personal assets but also optimizes tax strategies. While forming a business entity is not mandatory for deducting business expenses, many owners opt for an LLC or S-Corporation to gain liability protection and tax benefits.

Key Differences Between an LLC and an S-Corporation

Both LLCs and S-Corporations are pass-through entities, meaning that profits are taxed on the owner’s personal return rather than at the business level. However, there are significant distinctions between the two:

LLC: This structure is simple to manage with minimal formalities. All profits pass directly to owners as self-employment income.
S-Corp: This structure requires corporate formalities such as board meetings and record-keeping. Owners must be paid a reasonable salary, but it allows some income to be taken as dividends, thereby reducing self-employment taxes.

Tax Savings: How an S-Corp Can Reduce Self-Employment Taxes

Self-employed individuals are subject to a 15.3% self-employment tax on earnings, which covers Social Security and Medicare. An S-Corp can offer tax savings by structuring income as a combination of salary and dividends. For example:

LLC Owner (100% SE Taxable): $100,000 profit results in $15,300 in self-employment taxes.
S-Corp Owner (Salary + Dividends): A $75,000 salary plus $25,000 in dividends results in $11,475 in self-employment taxes.
Savings: This results in a $3,825 reduction in tax liability.
However, the salary must be according to fair market value so there are limits to this approach.

Choosing the Right Structure

An LLC is ideal for those seeking flexibility and ease of management. In contrast, an S-Corporation is often beneficial for businesses with growing profits that aim to reduce self-employment taxes. The advantage is that if you start as an LLC, you can later convert to a C-Corp and then elect S-Corp taxation as your income increases.

Need Help Deciding?

Our team is here to guide you through the process and ensure you choose the best structure for your business goals. Contact us today to learn more and make an informed decision.

About Greenspoon Marder

Greenspoon Marder LLP is a full-service law firm with over 225 attorneys and more than 20 office locations across the United States. With operations from Miami to New York and from Denver to Los Angeles, our firm attracts some of the nation’s top talent in key markets and innovation hubs. Our core practice areas include Real Estate, Litigation, and Transactional Services, complemented by the capabilities of a full-service firm. Greenspoon Marder has maintained a spot on The American Lawyer’s Am Law 200 as one of the top law firms in the U.S. since 2015, and our goal is to provide exceptional client service by developing a thorough understanding of each client’s business needs and objectives in order to provide strategic, cost-effective solutions.

MEDIA CONTACT

Natalie Villanueva, Director of Marketing
954.333.4308 | natalie.villanueva@gmlaw.com

This Greenspoon Marder LLP Client Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.

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LLC or S-Corporation: Which Business Structure is Right for You?

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