Determining the best corporate status for your business has many considerations. When thinking about self-employment taxes however, forming an S corporation offers a clear-cut benefit over forming an LLC. This tax applies for such things as Social Security and Medicare, much like the payroll tax deducted from ones paycheck.
In an S Corporation, an individual shareholder only pays tax on salaries and bonuses they receive from the company. On the other hand, a shareholder in an LLC pays on both salaries/bonuses and their share of profit in the company, which can amount to more than 15% of taxable income.
“Can S Corporation Status Reduce Self-Employment Taxes?” in MaxFilings’ Knowledge Center addresses this issue and raises other important considerations you must be aware of.