'S-corp vs. LLC' is a slightly misleading comparison — an S-corp is a tax election, not a business structure. An LLC (or a corporation) can elect to be taxed as an S-corp, which changes how profits are taxed without changing the underlying entity.
The default: LLC pass-through taxation
By default, an LLC's profits pass through to the owners' personal returns and are subject to self-employment tax on the full amount, including profits the owner didn't take as salary.
What an S-corp election changes
Electing S-corp status lets an owner split income between a salary (subject to payroll tax) and distributions (not subject to self-employment tax) — a structure that can reduce the overall tax bill once profits reach a meaningful level.
It comes with real obligations, not just savings
S-corp status requires paying the owner a 'reasonable salary,' running payroll, and filing additional tax forms — administrative overhead that can outweigh the tax savings for a smaller or newer business.
When it's worth making the switch
The election tends to make financial sense once net profit is consistently well above a reasonable salary for the owner's role — below that, the added complexity often isn't worth it.