Learn how S Corporation status can save you thousands in self-employment taxes while maintaining corporate liability protection.
Learn how S Corporation status can save you thousands in self-employment taxes while maintaining corporate liability protection.
An S Corporation is not a business entity type — it's a tax election that allows a corporation (or LLC) to be taxed as a pass-through entity while avoiding double taxation. S Corps combine the liability protection of a corporation with the tax benefits of a partnership. Shareholders pay taxes on their share of corporate income at individual rates, and the corporation pays no federal income tax.
S Corps offer pass-through taxation — corporate income passes through to shareholders' personal tax returns, avoiding the double taxation of C Corps. The biggest advantage is self-employment tax savings: S Corp shareholders who work as employees pay payroll taxes only on their reasonable salary, not on all corporate profits. Remaining profits can be distributed as dividends without self-employment tax.
Pass-through taxation with self-employment tax savings. Shareholders must pay themselves a reasonable salary subject to payroll taxes. Remaining profits can be distributed as tax-free dividends.
| Structure | Liability Protection | Tax Framework | Complexity | Ownership Type | Primary Use Case |
|---|---|---|---|---|---|
| C Corporation | Full | Double (Corporate + Personal) | Complex | Shareholders (unlimited) | Venture capital-funded startups & large enterprises |
| Corporation | Limited | Pass-through | Moderate | Members | Various |
| DBA | None (depends on entity) | Same as underlying entity | Minimal | Same as underlying entity | Businesses wanting multiple brand identities |
| LP | Limited (for limited partners only) | Pass-through | Moderate | General + Limited Partners | Real estate & investment funds |
| LLC | Limited | Pass-through | Simple | Members (unlimited) | Small business owners seeking liability protection |
| LLP | Partial (partner-to-partner) | Pass-through | Moderate | Partners | Professional service firms |
| Nonprofit | Limited (for directors) | Tax-exempt (501c3) | Complex | No owners — board governed | Charitable & mission-driven organizations |
| PLLC | Limited (varies by state) | Pass-through | Moderate | Licensed professionals only | Doctors, lawyers, accountants & architects |
| S Corporation | Full | Pass-through (S Corp election) | Moderate | Shareholders (max 100, US only) | Established businesses wanting tax savings |
| Sole Proprietorship | None | Personal (Schedule C) | Minimal | Single owner | Freelancers, consultants & sole traders |
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