Most owners start as a sole proprietor or a single-member LLC. As profit grows, the question changes from “how do I get set up?” to “am I paying more tax than I need to?”
What an LLC changes — and what it doesn’t
An LLC is a legal wrapper. It separates business liabilities from your personal assets, but by default the IRS taxes a single-member LLC exactly like a sole proprietorship: all profit flows to your personal return and is subject to self-employment tax.
When an S corp election starts to pay off
Electing S corporation status lets you split profit into a reasonable salary and distributions. Payroll taxes apply to the salary only, so once profit is consistently above roughly $80,000, the savings usually outweigh the extra payroll and filing costs.
- You run payroll for yourself, with quarterly filings.
- You file a separate business return (Form 1120-S).
- Your salary has to be defensible for the work you do.
How it affects your estimated payments
With an S corp, part of your tax is withheld through payroll, so quarterly estimated payments get smaller and more predictable. Distributions still need planning, which is where a quarterly review earns its keep.
How we help owners decide
We model both structures with your real numbers — profit, salary, state taxes and admin costs — and show the break-even point before you file anything.
