S Corp vs. LLC: Which Structure Saves You More in Taxes?

Summary of What This Blog Covers

• LLC profits are fully taxed as self-employment income.
  
  
• S Corp status can reduce taxes by splitting salary and profit.
  
  
• Salary must be reasonable under IRS rules.
  
  
• Switching makes sense around $75K+ in annual profit.

You didn’t start your business to think about tax elections.
 You started it because you had an idea that wouldn’t let go. A vision you could picture down to the smallest detail. Maybe it was the freedom to call your own shots. Or a mission you believed in enough to build from scratch even when the nights were long and the finances were tight.

But somewhere along the way, that vision turned into profit. And that profit turned into questions.

Questions like:
 Am I paying too much in taxes?
 Is my LLC still the right fit for my business?
 What’s the real difference between an LLC and an S Corp, and when should I care?

If these questions sound familiar, I want to reassure you: you’re not alone. And you’re not behind. You’re at a natural inflection point in the life of your business, one where structural clarity can unlock real financial savings and strategic growth.

At Insogna, we help business owners across Austin and the U.S. answer this exact question every day. Not just from a tax perspective, but from a bigger, more human one:
 How do I make my business work smarter, not just harder for the long run?

The Problem: Your LLC May Be Costing You More Than It Should

When you first started your business, forming an LLC was likely the right move. It’s affordable, simple, and offers liability protection with flexibility. Most importantly, it lets you get to work without getting tangled in paperwork.

But the LLC structure has a hidden cost that many entrepreneurs don’t discover until it shows up on their tax return:
 How the IRS treats your income.

By default, if you’re a single-member LLC, you’re taxed as a sole proprietor. If you’re a multi-member LLC, you’re treated as a partnership. That might sound harmless until you realize that means 100% of your business profits are subject to self-employment tax.

As of 2025, that’s 15.3% on the first $168,600 in net income. So, if your business is generating $90,000 in profit, you’ll owe nearly $13,770 in self-employment tax before we even talk about income tax.

This is the moment many business owners come to us, often frustrated. They’re earning more than ever before, but keeping less. And they’re asking the right question:

Isn’t there a better way to do this?

Yes, there is. And it’s called the S Corporation election.

The Solution: Electing S Corporation Status (Without Changing Your LLC)

Let’s take a moment to clear up some confusion. An S Corporation isn’t a legal structure like an LLC or a C Corporation. It’s a tax status, one you can elect by filing IRS Form 2553.

In fact, you can remain an LLC and still be taxed as an S Corporation. That’s the path most small business owners take once they reach the point where it makes financial sense.

Here’s the key difference:
 As an S Corp, you don’t have to pay self-employment tax on all of your profit. Instead, you split your income into two parts:

1. Salary — What you pay yourself as an employee
   
   
2. Distributions — The profit you take as the owner
   
   

You’ll pay payroll taxes on your salary, but not on your distributions. That’s where the savings begin.

A Real Example: How the Tax Savings Work

Let’s say your business earns $120,000 in net profit this year.

As an LLC (default taxation):

• 100% of that is taxed as self-employment income
  
  
• You’ll pay roughly $18,360 in self-employment tax
  
  

As an LLC with S Corp election:

• You pay yourself a reasonable salary of $60,000
  
  
• The remaining $60,000 is taken as a distribution
  
  
• You only pay payroll taxes on the $60,000 salary (~$9,180)
  
  
• Your tax savings: approximately $9,180
  
  

That’s real money. And it only increases as your profit grows.

It’s not a trick or a loophole. It’s an IRS-sanctioned strategy for small business owners to pay themselves fairly while avoiding unnecessary tax burden.

But here’s the nuance: you have to do it right.

Understanding “Reasonable Compensation”

One of the most misunderstood elements of the S Corp structure is reasonable compensation, the salary you must pay yourself as an owner-employee before taking distributions.

The IRS requires that this salary be “reasonable,” based on:

• Your duties and responsibilities
  
  
• Industry norms
  
  
• The size and profitability of your business
  
  
• What you would pay someone else to do your job
  
  

That number can’t be too low (to avoid taxes) or too high (to reduce distributions unnecessarily). And there’s no fixed formula which is why this is where strategy comes in.

At Insogna, we use industry benchmarking tools, IRS guidelines, and real-world business context to help you determine a salary that makes sense financially and legally.

Because protecting your business means thinking like both an owner and a CFO.

When Should You Make the Switch to S Corp?

This is one of the most important and personal questions we answer for clients.

Here’s a good rule of thumb:

• If your net profit exceeds $75,000 consistently, you should absolutely run the numbers
  
  
• If you’re starting to scale your team, take on larger contracts, or build infrastructure, the added structure of an S Corp often makes sense
  
  
• If you’re ready to invest in retirement plans, reduce audit risk, and grow with intention, the timing could be right
  
  

And if you’ve already missed the IRS’s March 15th deadline for the current tax year? Don’t worry. Many business owners qualify for Late Election Relief under IRS Rev. Proc. 2013-30.

We’ve helped dozens of clients file successful late elections and we’ll walk you through it, step by step.

New Responsibilities with S Corp Status

Let’s be honest. The tax savings don’t come without added responsibility. But they are manageable with the right systems and support.

What changes:

• You’ll need to run payroll for yourself (and any employees)
  
  
• You’ll need to file a separate business tax return (Form 1120-S)
  
  
• You’ll issue yourself a W-2 each year
  
  
• You’ll need to file quarterly payroll tax reports
  
  

This is where most business owners hesitate. And that’s understandable. You didn’t start your business to become a payroll administrator.

That’s why, at Insogna, we handle all of it. From automated payroll processing and quarterly filings to reasonable comp analysis and tax planning, we manage the details so you can focus on what matters: growing your business.

S Corp vs. LLC: Side-by-Side Snapshot

Why This Decision Matters More Than Ever

In an environment where tax policy is shifting and IRS enforcement is increasing, making strategic business decisions isn’t optional, it’s essential.

This isn’t just about saving money on taxes. It’s about:

• Protecting your business from avoidable risk
  
  
• Reinvesting wisely in your future
  
  
• Building financial systems that support your goals not sabotage them
  
  
• Moving from reactive to proactive in your financial life
  
  

Every hour you spend worrying about what you might be missing is an hour you could be spending leading, creating, or simply breathing easier.

This is your invitation to lead your business from a place of clarity, not confusion.

At Insogna, Strategy is Personal

We believe accounting should feel like a partnership, not a transaction. When you work with us, you’re not just getting a CPA in Austin or a checklist of compliance tasks.

You’re getting a proactive guide. A sounding board. A strategic thinker who sees the full picture of your business and meets you with equal parts technical expertise and genuine care.

We serve entrepreneurs, consultants, creatives, and service providers who want more than tax prep. They want guidance they can trust. And we deliver it through every season of business growth.

So, Which Structure Will Save You More in Taxes?

The truth? It depends on your business, your goals, and how you want to grow.

But what we know for certain is this:
 The more informed your decisions, the more empowered your future.

If you’ve been feeling unsure about your business structure or wondering if your tax plan is really working for you, it’s time to find out.

Let’s run the numbers together. We’ll look at your current structure, your income, your projections, and your goals—and we’ll give you a clear, confident recommendation.

No pressure. Just partnership.

Ready to Make the Switch Or Know If You Should?

We’d love to help you decide. Whether you need to:

• Analyze your tax savings potential
  
  
• File a new or late S Corp election
  
  
• Set up compliant payroll
  
  
• Build a stronger financial foundation
  
  

We’re here. And we’re ready to make this simple.

Connect with Insogna today.
 Let’s take the guesswork out of your business structure and replace it with strategy that actually supports your success.

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