S-Corp or LLC? Understanding Which Structure Is Right for You

By Aaron Metcalf, JD | MBA | PMP | Founder, Augmenta Consulting, LC

Why This Question Matters

Choosing how to structure your business isn’t just a paperwork decision — it shapes how you’re taxed, paid, and protected. For many small-business owners, the biggest fork in the road is between LLC and S-Corporation (S-Corp) status. Both can offer limited liability and flexible management, but they differ in how the IRS sees your income.

This guide breaks down the essentials so you can make an informed, confident choice.

Step 1: Understand the Basics

LLC (Limited Liability Company)

• What it is: A flexible business entity that separates your personal and business assets.

• How it’s taxed: By default, as a sole proprietorship (if one member) or partnership (if multiple).

• Key advantage: Simplicity — you report business income on your personal tax return.

• Main drawback: You pay self-employment taxes on all profits.

S-Corporation

• What it is: Not a separate entity type, but a tax election you make with the IRS (via Form 2553).

• How it’s taxed: You become an employee of your own company, drawing a salary + owner distributions.

• Key advantage: You only pay self-employment taxes on your salary, not your distributions.

• Main drawback: More paperwork — payroll, reasonable-compensation rules, and separate filings.

Step 2: Compare the Tax Impact

Scenario	LLC (default)	S-Corp (elected)
Net profit: $100 000	Entire $100 000 subject to ≈15.3 % SE tax	Salary $60 000 (15.3 %), Distributions $40 000 (no SE tax)
Approx. Savings:	—	≈ $6 000 per year (after payroll costs)

✅ Bottom line: If your net income consistently exceeds ≈ $50 000, an S-Corp election can yield meaningful tax savings — but you’ll need to run payroll and keep clean books.

Step 3: Factor in Administrative Differences

Feature	LLC	S-Corp
Annual Filing	Utah $20 renewal	Same + Form 1120-S to IRS
Payroll	Not required	Required (you pay yourself a salary)
Distributions	Flexible draws	Must follow IRS profit rules
Record Keeping	Simpler	More structured (payroll, minutes)

Step 4: Decide Based on Your Goals

• Choose LLC if you value: simplicity, minimal filings, early-stage flexibility.

• Choose S-Corp if you value: tax efficiency once profits grow and you’re ready for payroll.

Many business owners start as LLCs, then elect S-Corp status later (you can file Form 2553 anytime in your first 2 ½ months of a new tax year).

Step 5: Next Steps

1. Form your LLC with the Utah Division of Corporations.

2. Obtain an EIN from the IRS.

3. If eligible, file Form 2553 to elect S-Corp status for the new tax year.

4. Set up a simple payroll system (Xero Payroll, Gusto, or QuickBooks).

5. Keep personal and business finances separate.

How Augmenta Consulting Can Help

Through my LLC in a Box and Financial Health Checkup packages, I guide clients through both formation and optimization:

• Entity selection advisory (LLC vs S-Corp)

• Filing guidance and documentation

• Custom Operating Agreement templates

• 10-year financial projection and tax planning

👉 Book a Free Strategy Call to see which structure fits your goals.