Entity choice affects self-employment tax, owner compensation requirements, and paperwork. Here is how we help clients decide.
The right entity depends on profit level, owner count, and how much administrative work you want.
LLC
Simple to form and maintain. Profits flow through and are generally subject to self-employment tax.
S-Corporation election
Owners must take reasonable compensation, and remaining profit is generally not subject to self-employment tax. This can save money once profits are consistent, but it adds filing and recordkeeping requirements.
Rule of thumb
Once net profit reliably exceeds roughly $50,000, an S-corp election deserves a serious look. We run the numbers both ways before recommending a change.