If you’re a small business owner in Marietta, Georgia, one of the biggest financial decisions you’ll make has nothing to do with your product or your customers — it’s how your business is taxed. The “LLC vs S-Corp taxes” debate comes up constantly in our office at TJ Marshall Tax & Accounting, and for good reason. Choosing the wrong structure can cost you thousands of dollars a year in unnecessary taxes, while choosing the right one can put real money back into your business.
The truth is, there’s no single “better” answer — the right choice depends on your income level, how you pay yourself, and your long-term goals. In this guide, we’ll break down exactly how LLCs and S-Corps are taxed, where the real savings come from, and how to know which structure fits your business.
LLC vs S-Corp: They’re Not Actually Two Different Things
Before we go further, it helps to clear up a common misconception: an LLC and an S-Corp aren’t two competing business structures in the way people often think. An LLC is a legal entity created under state law. An S-Corp is a tax election made with the IRS. In fact, many businesses are legally organized as an LLC and then elect to be taxed as an S-Corporation. So the real comparison isn’t “LLC or S-Corp” — it’s “how do I want my LLC (or corporation) to be taxed?”
There are three common ways a small business can be taxed:
- Default LLC taxation — as a sole proprietorship (single-member) or partnership (multi-member)
- S-Corp election — the business elects S-Corp status via IRS Form 2553
- C-Corp taxation — less common for small businesses due to double taxation
For most small business owners weighing their options, the decision comes down to option 1 versus option 2.
How LLC Taxes Work (Default Taxation)
When you form an LLC and don’t make any special tax election, the IRS treats it as a “disregarded entity” (single-member) or a partnership (multi-member). This means:
- Pass-through taxation: Profits pass through to your personal tax return, and you pay tax at your individual income tax rate.
- Self-employment tax on all profits: This is the big one. As an LLC owner taxed by default, you pay the full 15.3% self-employment tax (Social Security and Medicare) on all of your net business profit — not just a salary.
- Simplicity: No payroll to run, no reasonable salary calculations, and less paperwork overall.
Example: If your LLC nets $100,000 in profit for the year, you’ll owe self-employment tax on the full $100,000 (subject to the Social Security wage base cap), in addition to federal and state income tax.
How S-Corp Taxes Work
When a business elects S-Corp status, the tax treatment changes in one very important way: the owner must be paid a “reasonable salary” through payroll, and only that salary is subject to Social Security and Medicare tax. The remaining profit can be distributed to the owner as a distribution, which is not subject to self-employment tax.
- Split income structure: Part salary (payroll taxed), part distribution (not subject to self-employment tax).
- Payroll requirements: You must run actual payroll, withhold taxes, and file quarterly payroll tax returns.
- Reasonable compensation rules: The IRS requires that your salary be “reasonable” for the work you do — you can’t pay yourself $1 and take the rest as distributions to dodge payroll tax. The IRS actively audits S-Corps on this issue.
- Additional administrative costs: Payroll processing, a separate business tax return (Form 1120-S), and often a formal accounting system.
Example: Using the same $100,000 in profit, if a reasonable salary for your role is $50,000, you’d pay self-employment-equivalent payroll taxes on $50,000 instead of the full $100,000 — potentially saving thousands in Social Security and Medicare tax on the remaining $50,000 distribution.
Where the Real Tax Savings Come From
The self-employment tax savings are the headline reason business owners consider an S-Corp election. Since self-employment tax runs 15.3% on Social Security and Medicare combined, avoiding that tax on a meaningful chunk of your profit can add up quickly.
However, S-Corp savings aren’t automatic or unlimited. A few things affect the math:
- Payroll costs: Running payroll isn’t free. Between payroll software or a payroll service, plus employer-side payroll taxes on the salary portion, you’re adding real costs that eat into the savings.
- Reasonable salary requirements: If you set your salary too low to maximize distributions, you risk an IRS audit and back taxes, penalties, and interest.
- Additional tax filings: S-Corps require a separate business return, which increases your accounting and preparation fees.
- State-level considerations: Georgia has its own rules around S-Corp elections and franchise-type fees that should factor into your decision. As a Marietta-based firm, we factor Georgia-specific rules into every recommendation we make.
As a general rule of thumb, many tax professionals suggest that an S-Corp election starts to make financial sense once a business is netting somewhere around $60,000–$80,000 or more in consistent annual profit — but this varies significantly based on your specific numbers, industry, and expenses. There’s no flat threshold that applies to every business, which is exactly why running the actual numbers matters more than a rule of thumb.
The Qualified Business Income (QBI) Deduction Matters Too
Both LLC and S-Corp owners may be eligible for the Qualified Business Income deduction under Section 199A, which allows eligible pass-through business owners to deduct a portion of their qualified business income from their taxable income. This deduction was recently made a permanent part of the tax code, removing the uncertainty that used to surround year-end tax planning for small business owners.
Here’s an important nuance: because the QBI deduction is generally based on your qualified business income, and S-Corp salary is treated as wages rather than qualified business income, your salary/distribution split can actually affect the size of your QBI deduction. This is one more reason the LLC vs S-Corp decision shouldn’t be made in isolation — it needs to be modeled against your full tax picture, not just the self-employment tax savings.
Other Factors Beyond Taxes
While taxes are usually the deciding factor, they shouldn’t be the only one. Consider:
- Administrative burden: S-Corps require more recordkeeping, payroll compliance, and formal corporate formalities.
- Cash flow needs: If your income fluctuates, committing to a fixed payroll salary can create cash flow strain in slower months.
- Growth plans: If you’re planning to bring on investors, partners, or scale significantly, your structure needs may change.
- Retirement plan contributions: S-Corp owners may have different (and sometimes more favorable) options for retirement plan contributions based on W-2 wages.
- State-specific rules: Georgia’s tax treatment of pass-through entities and franchise-related fees should be part of any Marietta-area business’s decision.
LLC vs S-Corp: A Quick Comparison
| Factor | LLC (Default) | S-Corp Election |
|---|---|---|
| Self-employment tax | On full net profit | Only on reasonable salary |
| Payroll required | No | Yes |
| Administrative complexity | Low | Moderate to high |
| Tax filings | Personal return (Schedule C) | Separate business return (1120-S) |
| Best for | Lower profit, early-stage businesses | Consistent, higher profit businesses |
So, Which Is Better for Your Business?
Here’s the honest answer: it depends entirely on your numbers. An S-Corp election can generate meaningful tax savings once your business reaches a certain profitability level, but those savings need to outweigh the added payroll costs, filing fees, and administrative time. For newer businesses or those with fluctuating income, staying with default LLC taxation often makes more sense until profits stabilize.
The only reliable way to know which structure is right for you is to run the actual numbers for your business — your specific revenue, expenses, industry, and goals. A generic rule of thumb can point you in the right direction, but it can’t replace a real projection built around your business.
Let TJ Marshall Tax & Accounting Help You Decide
At TJ Marshall Tax & Accounting, we work with small business owners throughout Marietta and the greater Atlanta area to model out exactly what an S-Corp election would mean for their bottom line — factoring in federal self-employment tax savings, Georgia state tax rules, payroll costs, and the QBI deduction. We don’t believe in one-size-fits-all advice; we believe in numbers that reflect your actual business.
If you’re weighing an S-Corp election, wondering whether your LLC should file Form 2553, or simply want a second opinion on your current structure, reach out to our Marietta team for a consultation. We’ll walk through your numbers together and help you make a confident, informed decision — not a guess.
For more detail directly from the source on S-Corporation tax requirements, you can also review the IRS’s official S Corporations guidance.
TJ Marshall Tax & Accounting proudly serves small business owners in Marietta, GA and the surrounding Atlanta metro area with personalized tax planning, entity structuring, and accounting services. Visit us at tjm-taxes.com to learn more.