LLC vs S-Corp vs C-Corp: Choosing the Right Business Structure
Understand the tax implications, liability protection, and operational differences between LLCs, S-Corps, and C-Corps to choose the best entity for your business.
By Moore CPA Team
One of the most consequential decisions a business owner makes is choosing the right entity structure. The wrong choice can cost you thousands in unnecessary taxes. Here's what you need to know.
Limited Liability Company (LLC)
Best for: Most small businesses, real estate investors, and single-owner companies.
An LLC provides liability protection while offering maximum flexibility. By default, a single-member LLC is taxed as a sole proprietorship (Schedule C), and a multi-member LLC is taxed as a partnership. However, an LLC can elect to be taxed as an S-Corp or C-Corp.
Pros: Simple formation, flexible tax treatment, liability protection, no double taxation. Cons: Self-employment tax on all net income (unless S-Corp election is made).
S-Corporation
Best for: Profitable businesses where owners actively work in the business and earn over ~$50,000 in net income.
The S-Corp's key advantage is saving on self-employment taxes. Owners pay themselves a reasonable salary (subject to payroll taxes), then take remaining profits as distributions (not subject to SE tax).
Pros: Self-employment tax savings, pass-through taxation, liability protection. Cons: Reasonable salary requirement, more compliance burden, limited to 100 shareholders.
C-Corporation
Best for: Businesses seeking outside investment, companies with significant retained earnings, or businesses that will go public.
C-Corps pay corporate income tax at 21%, then shareholders pay tax on dividends (double taxation). However, the Qualified Small Business Stock (QSBS) exclusion can eliminate capital gains tax on stock held 5+ years.
Pros: Unlimited shareholders, attractive for investors, QSBS benefits, retained earnings taxed at 21%. Cons: Double taxation on distributions, more regulatory requirements.
The Real Question: How Much Can You Save?
The difference between entity types often comes down to $5,000-$30,000+ per year in tax savings. That's why this decision shouldn't be made based on a blog post — it requires analysis of your specific revenue, expenses, growth plans, and personal tax situation.
Schedule a free consultation and we'll model the tax impact of each structure for your business.