LLC or S Corp: Choosing the Best Business Structure in 2025
- Shelley Thompson
- Dec 31, 2024
- 2 min read
Starting or restructuring a business comes with many decisions, and one of the most critical is selecting the right legal structure. For small business owners, choosing between an LLC (Limited Liability Company) and an S Corporation (S Corp) often boils down to understanding the tax implications. Here’s a breakdown of each structure and tips to help you make the best choice for your business.
What Is an LLC?
An LLC is a flexible business structure offering liability protection for owners while keeping taxation relatively simple. Business profits and losses “pass through” to the owners’ personal tax returns, avoiding the double taxation of a traditional corporation.
Advantages of an LLC:
Liability protection for personal assets.
Fewer administrative requirements than corporations.
Flexibility to be taxed as a sole proprietor, partnership, or corporation.
What Is an S Corporation?
An S Corporation is a tax designation that allows a corporation or LLC to pass its income, losses, deductions, and credits directly to shareholders, similar to an LLC. However, S Corps have stricter rules on ownership and require more formalities.
Advantages of an S Corp:
Avoids double taxation while still offering liability protection.
Potential tax savings on self-employment taxes.
Enhanced credibility with clients and investors.
Key Differences Between LLC and S Corp
Aspect | LLC | S Corporation |
Taxation | Pass-through taxation. | Pass-through taxation; potential payroll tax savings. |
Ownership | Unlimited members. | Limited to 100 shareholders; all must be U.S. citizens or residents. |
Management | Flexible structure. | Must have a board of directors and officers. |
Self-Employment Taxes | Owners pay self-employment taxes on all earnings. | Only the owner’s salary is subject to self-employment taxes. |
Which Is Right for You?
Choosing between an LLC and an S Corp depends on your business size, growth plans, and tax needs:
LLC: Ideal for smaller businesses seeking flexibility and simplicity.
S Corp: Better for businesses with higher profits looking to reduce self-employment taxes.
Determining the best structure for your business isn’t just about legal requirements—it’s about understanding the tax implications for your specific situation. Shelley specializes in helping small business owners explore their options and make informed decisions.
Starting or restructuring your business in 2025? Contact us today to learn how we can guide you through the process and set you up for financial success.