What's the Difference Between an LLC and an S Corporation for Taxes?

An LLC (Limited Liability Company) and an S Corporation are both popular business structures that offer personal liability protection, but they're taxed differently by default. A single-member LLC is treated as a sole proprietorship for tax purposes, meaning all business profit flows to your personal return and the full amount is subject to self-employment tax. An S Corporation allows you to split your income between a salary and distributions — you pay self-employment tax only on the salary portion, which can lead to meaningful savings if the business earns significant profit. However, an S Corporation comes with more administrative requirements, including payroll, a separate tax return, and stricter ownership rules. Many self-employed business owners look at converting to an S Corporation once their net profit consistently exceeds around $50,000 to $60,000 per year.