What is a S-Corp?

An S-Corp is actually not a business structure, it is a tax classification. An LLC can elect to be taxed as S-Corp and it can save you a lot of money. However, there are some important points to consider before making this decision. 

The main difference between an LLC and an S-Corp are the payments to the owners/members.

Under an LLC, payments to the owner come in the form of a distribution. This distribution is subject to both employment tax (typically ~15%) as well as income tax. 

Under an S-Corp, payments to the owner come in the form of a salary and a distribution. The salary is subject to employment tax and income tax; however, the distributions are subject only to income tax. This is the main benefit of an S-Corp - you can avoid paying employment tax on your distributions!

An S-Corp is a great choice when you want to withdraw most of the profit from your business. If your distribution (after paying yourself a salary) is not greater than $10,000 it probably doesn’t make sense since it can cost about $1k - $2k annually to maintain S-Corp status. If you want to reinvest most of your profit back into your business, a normal LLC is a better option.