S Corp vs. LLC: When the Election Actually Saves You Money
An LLC and an S corporation are not competing entity types so much as layers: many S corps are LLCs that filed an election. The tax difference comes down to self-employment tax. LLC profits generally face it in full, while S corp owners pay it only on the salary they draw, not on remaining distributions.
That gap sounds like free money until you count the costs of the election: running payroll, filing a separate return, and paying yourself a salary the IRS considers reasonable for your role. Below a certain profit level, those costs and obligations outweigh the savings.
As a rough frame, the math starts getting interesting when profits comfortably exceed a reasonable salary for your work. Where that line sits depends on your state, industry, and payroll costs, which is exactly the modeling conversation worth having before the election deadline, not after.