How the business structures compare
Answer a few plain questions and see which structures owners in a situation like yours usually look at first, and why: liability, cost, complexity, raising money, and the tax. Every term explained. Not a recommendation; the choice is one for a CPA and an attorney.
Tell us about your business
Answer the five questions above to see which structure owners in a situation like yours usually look at first, with the reasons in plain terms.
How the self-employment tax math changes under an S-corp election
The one place the structure changes real dollars. At the profit you entered, here is roughly how the self-employment tax compares with and without the election, using 2026 federal figures (rates and thresholds change yearly). Adjust the salary and added costs to your situation.
The numbers
Compare the structures at a glance
| Sole Prop | LLC | S-Corp | C-Corp | |
|---|---|---|---|---|
| Protects your personal assets? | No, you and the business are legally the same. | Yes, a legal wall between you and the business. | Yes, it is an LLC or corporation underneath. | Yes. |
| How you are taxed | Profit goes on your personal return; all of it owes 15.3% self-employment tax. | Same as sole prop by default: profit flows to you, self-employment tax on all of it. | Split into salary + distributions; only the salary owes the 15.3% tax. | Company pays 21%, then you are taxed again on dividends (double taxation). |
| Cost & effort to set up | Nothing. You already are one. | A state filing and fee (often $50-500). | Form an LLC or corp, then file an election with the IRS. | State filing plus more setup (bylaws, shares). |
| Ongoing paperwork | Almost none. | Light, usually a yearly report and state fee. | More: run payroll and file a separate business return. | Most: a separate return, formal meetings and minutes. |
| Good for raising investment? | No. | Hard, most investors will not. | No, capped at 100 US owners, one share class. | Yes, what VCs and angels expect. |
| Best for | Testing an idea, side projects, low-risk solo work. | Most small businesses wanting protection and simplicity. | Profitable businesses wanting to cut self-employment tax. | Startups raising venture capital, or reinvesting heavily to grow. |
Plain-English glossary
- Limited liability
- A legal wall between you and your business. If the business is sued or cannot pay a debt, your personal assets (home, savings, car) are generally protected.
- Pass-through taxation
- The business itself pays no income tax. Profit "passes through" to the owners and is taxed on their personal returns. Sole props, LLCs, and S-corps all work this way.
- Self-employment tax
- The 15.3% you pay toward Social Security and Medicare when you work for yourself, the share an employer would normally cover for you. It hits your business profit on top of regular income tax.
- S-corp election
- Not a type of company, but a tax choice an LLC or corporation can make. It lets you split your pay into a salary and distributions, so the distributions skip the 15.3% self-employment tax.
- Distributions
- Profit you take out as an owner rather than as a paycheck. In an S-corp, distributions are not hit with self-employment tax, which is the whole saving.
- Reasonable salary
- If you elect S-corp, the IRS requires you to pay yourself a fair wage for your work before taking distributions. Paying too little to dodge tax is a red flag they watch for.
- Double taxation
- When profit is taxed twice: once when the company earns it, and again when it is paid to you as a dividend. This is the C-corp trade-off.
- Franchise tax / annual report
- Small yearly obligations most states put on LLCs and corporations: a fee and a short form to keep your entity in good standing.
A self-assessment explainer, not legal or tax advice, and not a recommendation of any structure. The right structure depends on your full situation (state tax, the QBI deduction, other income, personal guarantees) and the rules change by state and over time. Confirm with a CPA and an attorney before you form an entity or elect S-corp status.