LLC and S-Corp Formation and Tax Election
An LLC is a legal structure and an S-Corp is a tax election. Understanding that distinction is where the saving is, and where most of the confusion comes from.
LLC and S-Corp Formation and Tax Election with EvoTax
The question people ask is whether to form an LLC or an S-Corp, but that comparison is not quite real: an LLC is a state-law entity, while S-Corp is a federal tax election that an LLC or a corporation can make. The decision that actually matters is how your entity is taxed. By default a single-member LLC is disregarded and its profit is reported on your personal return, with the whole of it subject to self-employment tax. Elect S-Corp treatment and you split the profit into a reasonable salary, which bears employment tax, and a distribution, which does not — potentially a meaningful saving. It is not free: an S-Corp brings payroll, a separate return and more administration, so below a certain profit level the cost exceeds the benefit. EvoTax models your numbers, tells you whether the election is worth making in your case, and handles the formation, the Form 2553 election and the payroll that has to follow.
Benefits & What You Get
The election modelled on your numbers
We compare default LLC taxation against the S-election on your actual profit, including the added compliance cost.
Reasonable salary set defensibly
Too low invites reclassification and penalties. We set a salary that stands up to scrutiny and still captures the saving.
Form 2553 filed within the window
The election has a strict deadline. We file it on time, or use late-election relief where the window has passed.
Formation and EIN handled
State formation, operating agreement and EIN are handled so the entity actually exists before you rely on it.
Payroll set up from day one
An S-Corp without payroll is the most common failure. We put the payroll in place alongside the election.
How It Works
Model the options
We project your profit and compare default taxation with the S-election, net of the extra compliance burden.
Form the entity
We register the LLC or corporation in your state, obtain the EIN and prepare the governing documents.
File the election
Where it makes sense, we prepare and file Form 2553 within the deadline for your intended effective date.
Set up compliance
We establish payroll, set your salary, and put the ongoing filing calendar in place.
Pricing
State filing, EIN, operating agreement
Including reasonable salary analysis
Entity, EIN and election together
Annual return with K-1s
Final pricing depends on the complexity of your case. Contact us for an exact quote.
Frequently Asked Questions
What is the difference between an LLC and an S-Corp?
They are different kinds of thing. An LLC is a legal entity formed under state law that gives you liability protection. S-Corp is a federal tax classification you elect with the IRS, and an LLC or a corporation can elect it. So the real choice is not LLC versus S-Corp but how your LLC is taxed: by default, or as an S-Corp.
How does an S-Corp election save self-employment tax?
A single-member LLC by default passes its whole profit to your personal return, and all of it is subject to self-employment tax at 15.3% up to the Social Security wage base and 2.9% for Medicare above it. Under an S-election you take a reasonable salary, which bears employment tax, and the remaining profit as a distribution, which does not. The saving is the employment tax on the distribution portion.
At what profit level is the S-election worth it?
There is no universal figure, because it depends on a defensible salary for your role and what the extra compliance costs you. An S-Corp adds payroll processing, a separate 1120-S return and often state-level fees. Below roughly the mid five figures of profit those costs commonly outweigh the employment tax saved; well above it the election usually pays for itself several times over. It is worth modelling rather than following a rule of thumb.
What is a reasonable salary and why does it matter?
It is what you would have to pay someone else to do your job, judged on duties, experience, time spent and comparable pay. It matters because the incentive is to set the salary low and take more as distribution, and the IRS knows that. An unreasonably low salary can be reclassified, with back employment tax, interest and penalties, which erases the saving. Setting it defensibly is the whole exercise.
When must Form 2553 be filed?
For an election effective from the start of a tax year, generally no later than two months and fifteen days after the beginning of that year, or at any time during the preceding year. Miss it and the election normally takes effect the following year instead — though the IRS provides late-election relief where there was reasonable cause, which we can pursue if you have missed the window.
Ready to get started with LLC and S-Corp Formation and Tax Election?
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