S Corporation vs LLC Tax Advantages: Which is Better for Your Business?

When choosing a legal structure for your business in the United States, understanding the tax implications of each option is essential. Two of the most popular choices among entrepreneurs and small business owners are the LLC (Limited Liability Company) and the S Corporation.

While both offer liability protection and pass-through taxation, they differ in how taxes are handled — and these differences can have a significant impact on your bottom line.

In this article, we’ll explain the key tax advantages of an S Corporation vs LLC tax advantages, and how Riveros Corp can guide you through the process of choosing and forming the best structure for your business.

What Is an LLC?

An LLC (Limited Liability Company) is a flexible business structure that combines liability protection with simple taxation. It’s often the go-to option for new business owners.

Tax Treatment:

• By default, an LLC is taxed as a sole proprietorship (if single-member) or a partnership (if multi-member)
• Profits pass through to the owner’s personal tax return.
• The owner must pay self-employment taxes (Social Security and Medicare) on 100% of net income.

At Riveros Corp, we help you structure your LLC properly and decide whether it makes sense to change its tax classification in the future.

What Is an S Corporation?

An S Corporation is a tax election status that a corporation or an LLC can adopt by filing Form 2553 with the IRS. It allows for pass-through taxation, like an LLC, but with additional tax benefits especially when it comes to self-employment tax savings.

Tax Treatment:

• Business income “passes through” to shareholders’ personal tax returns.
• Owners who work in the business must pay themselves a reasonable salary, which is subject to payroll taxes.
• Remaining profits can be taken as distributions, which are not subject to self-employment tax.

Riveros Corp can handle the entire S Corp election process for you, including incorporation, EIN setup, and IRS filings.

S Corporation vs LLC: Tax Advantages Compared

1. Self-Employment Tax Savings

LLC: Owners pay self-employment tax on all business income.

S Corp: Only the salary portion is subject to payroll taxes. The rest is distributed as profits, free from self-employment tax, resulting in substantial savings for profitable businesses.

2. Payroll and Withholding

LLC: No payroll required — owners simply take draws.

S Corp: Must run payroll and file quarterly tax reports. This adds complexity but enables strategic tax planning.

3. Tax Filing Requirements

LLC: Reports income on Schedule C (single-member) or Form 1065 (multi-member).

S Corp: Must file Form 1120-S and provide Schedule K-1 to shareholders.

4. Eligibility Rules

S Corps have restrictions:

1. Only U.S. citizens or residents can be shareholders.
2. No more than 100 shareholders.
3. Can only issue one class of stock.

LLCs don’t face these limitations and offer more flexibility in ownership and profit distribution.

Which One Is Better for Taxes: S Corp or LLC?

There’s no one-size-fits-all answer. It depends on your:

Net profits, Growth goals, Desire for simplicity vs. savings, Willingness to handle more compliance.

S Corps are ideal if your business earns consistent profit and you’re ready to optimize for tax savings.

LLCs are better for flexibility, simplicity, and businesses that are still getting off the ground or have foreign owners.

Can an LLC Be Taxed as an S Corporation?

Yes! This is a popular tax strategy.

You can form an LLC and later elect to be taxed as an S Corporation by filing Form with the IRS. This gives you the legal flexibility of an LLC with the tax advantages of an S Corp.

At Riveros Corp, we help you evaluate the best time to make this election — and handle the entire process for you, step by step.