Benefits of S-Corp vs LLC
Updated: Nov 8
The major benefit of an s-corp vs an LLC is the FICA tax advantage. If a s-corp reports $1.0m in annual profit, 50% might flow to direct owners via a salary while the remaining will be paid via profit distribution.
You are only taxed the 15.3% FICA tax on your wages and not the profit distribution. This is one of the nuances vs an LLC that is commonly overlooked. Unless a LLC requests to be taxed as an s-corp all income will be subject to the 15.3% FICA tax.
The tricky part is how much you pay yourself via a salary, as a salary too low will be scrutinized by the IRS. In other words, to prevent paying any FICA tax, it is unreasonable to pay yourself a salary of $0 and instead opt for the profit distribution.