It is the most common question we hear from new business owners, and the answer starts with a correction: an LLC is a legal entity, and an S corporation is a tax election. You can have both. Here is how we walk clients through the choice.
Start with liability
Both an LLC and a corporation separate your personal assets from the business’s debts, as long as you keep them separate: a business bank account, business records, and no personal expenses paid through the company. The protection comes from the discipline, not the paperwork alone.
How an LLC is taxed by default
With one owner, the LLC is a “disregarded entity”: the profit goes on Schedule C of your personal return, and all of it is subject to self-employment tax (15.3% up to the Social Security wage base, and 2.9% above it). With two or more owners, the LLC files a partnership return (Form 1065) and each owner receives a K-1.
What the S election changes
By filing Form 2553, the LLC (or a corporation) is taxed as an S corporation. The form is due within 2 months and 15 days of the start of the tax year it should apply to (or of the date the company was formed); late-election relief exists, but the election is not retroactive by default. You become an employee of your own company and take a reasonable salary through payroll: roughly what you would pay someone else to do your job, which the IRS looks at closely. The remaining profit comes to you as distributions, which are not subject to self-employment tax. That gap is where the savings come from.
What it costs
Payroll, even for one person. A separate business return (Form 1120-S). More bookkeeping discipline. In Florida, both structures file an annual report by May 1: $138.75 for an LLC and $150 for a corporation. The election only pays off when profit is comfortably above a reasonable salary, which is why many accountants start the conversation once profit passes roughly $50,000.
Two Florida specifics
Florida has no personal income tax, so an S corporation’s pass-through profit is not taxed at the state level. A C corporation, by contrast, pays Florida’s 5.5% corporate income tax.
S corporation shareholders must be U.S. citizens or resident aliens for tax purposes. If an owner is a nonresident alien, the S election is off the table and the structure needs real planning. We do this often for foreign investors.
How we decide with clients
Three questions settle most cases: how much profit you expect, whether every owner is a U.S. citizen or resident alien, and whether you are willing to run payroll for yourself. Then we compare the two with your actual numbers, not a rule of thumb.
As an illustration only: with $40,000 of profit, the self-employment tax an S election saves rarely covers the payroll and separate-return costs. With $100,000 of profit and a reasonable salary of $60,000, the $40,000 taken as distributions avoids about $6,000 of self-employment tax (15.3%) before those costs. Your own numbers, and your field, decide; talk to us before relying on any rule of thumb.
You do not have to choose forever. Many clients start as a plain LLC and make the S election once the profit justifies it.
General information, not advice for your situation. Rules change; talk to us before acting.
If you are about to register a company in Florida, talk to us before you file. Changing structure later is possible, but it is more work than starting right.
Related service: Business Formation
By Martha Otalora · Founder & CEO, MO Accounting Services. Last reviewed October 2026.
