Starting a business is exciting, but choosing the right business structure can be overwhelming. if you’re wondering whether to go with an llc, s corp or c corp, you’re in the right place. your choice affects taxes, profits and how much money stays in your pocket at the end of the day.
In this guide, we’ll break down these three business structures, compare their tax implications, and help you decide which one saves you the most money.
What is an llc, s corp and c corp?
Before diving into taxes and cost savings, let’s get a quick understanding of each business structure.
llc (limited liability company)
The llc is the most popular choice for small business owners because it’s easy to set up and offers legal protection for personal assets.
- pass-through taxation (profits go directly to owners, avoiding corporate taxes)
- Less paperwork than corporations
- Flexible management (you can be a one-person llc or have multiple members)
- Self-employment taxes can be high
S corporation (s corp)
The s corp is a special type of business structure that offers tax benefits by reducing self-employment taxes while still being a pass-through entity.
- Owners pay themselves a reasonable salary and take the rest as distributions, which are not subject to self-employment taxes
- Avoids double taxation (unlike c corps)
- Still provides limited liability protection
- Strict rules—only u.s. citizens/residents can own an s corp and you’re limited to 100 shareholders
C corporation (c corp)
The c corp is the most complex structure, often used by larger businesses and startups looking for investors.
- Lower corporate tax rates (currently 21%)
- Can raise unlimited capital by issuing stocks
- Business profits stay within the company instead of being taxed as personal income
- Double taxation—profits are taxed at the corporate level and again when distributed as dividends to owners
- More paperwork and regulations than llcs and s corps
Tax implications: which structure saves you the most money?
Taxes play a huge role in how much money you get to keep. let’s compare how each structure is taxed.
| Factor | llc | s corp | c corp |
|---|---|---|---|
| taxation type | pass-through | pass-through | double taxation |
| self-employment taxes | yes | reduced | no |
| corporate tax rate | n/a | n/a | 21% |
| dividend tax | n/a | n/a | yes |
| payroll tax savings | no | yes | yes (through payroll) |
Key takeaway:
- If you’re a small business or freelancer, the llc works well—but watch out for high self-employment taxes
- If you want to save on self-employment taxes, the s corp lets you pay yourself a salary and take the rest as tax-free distributions
- If you plan to scale big or get investors, a c corp may be best, but you’ll face double taxation
Owner compensation: how much do you keep?
How you pay yourself varies depending on the structure you choose.
- llc owners: Take profits as distributions but must pay self-employment taxes
- s corp owners: Pay themselves a reasonable salary (subject to payroll taxes) and take remaining profits as distributions, avoiding self-employment taxes
- c corp owners: Get paid through a salary, but dividends get taxed twice (corporate level + personal level)
Money saving tip:
if you’re a small business owner making over $50,000 per year, electing s corp status could save you thousands in taxes.
Business expenses and deductions
Every business structure allows for deductions, but some offer more savings than others.
| Expense type | llc | s corp | c corp |
|---|---|---|---|
| Health insurance deductions | yes | yes | best |
| Retirement plan contributions | yes | yes | best |
| Fringe benefits (e.g., life insurance) | limited | limited | best |
c corps have the best tax advantages when it comes to fringe benefits, but llcs and s corps still allow for standard business deductions.
Legal and compliance costs
Each structure has different requirements and fees.
| Factor | llc | s corp | c corp |
|---|---|---|---|
| formation cost | low | moderate | high |
| annual compliance | low | moderate | high |
| irs reporting | simple | moderate | complex |
if you want simplicity, an llc is the easiest and cheapest to manage.
Scalability and fundraising: which one is best for growth?
If you plan to raise money from investors, a c corp is often the best choice.
- c corps attract venture capitalists and allow stock issuance
- s corps have restrictions—you can’t have more than 100 shareholders or non-u.s. owners
- llcs are great for small businesses but aren’t ideal for raising large funds
Which business structure should you choose?
if you’re still unsure, here’s a quick guide:
- Choose an llc if you’re a small business owner or freelancer who wants simplicity and legal protection
- Choose an s corp if you’re making over $50,000 per year and want to save on self-employment taxes
- Choose a c corp if you plan to scale, raise investor money, or go public in the future
if you’re still not sure, consult a tax professional before making a decision.
FAQs
Can i switch from an llc to an s corp later?
Yes. if you start as an llc, you can elect s corp status later to save on taxes. this is a common strategy for growing businesses.
What’s the biggest tax advantage of an s corp?
The biggest advantage is reducing self-employment taxes by taking distributions instead of paying payroll taxes on 100% of profits.
Does a c corp always pay double taxes?
Not necessarily. if the business reinvests its profits instead of distributing dividends, you can avoid some double taxation.
What is the cheapest business structure to start?
The llc is the most affordable and easiest to maintain with minimal paperwork.
Final thoughts: the best choice for saving money
Your business structure impacts how much you pay in taxes, how you get paid and how easy it is to grow.
- If you’re just starting out, an llc is simple and protective
- If you’re making decent money and want to cut self-employment taxes, an s corp is ideal
- If you’re planning to go big, raise capital, or go public, a c corp is the way to go
Ready to set up your business? talk to a tax expert and pick the structure that saves you the most money.
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