Before anything else: this article is general information with illustrative math, not tax advice. The S-Corp decision depends on your state, your numbers, and facts we can't see from here. Read this to walk into your CPA conversation informed — not to skip it.
Start by fixing the question, because the internet version is broken. "LLC vs S-Corp" implies a choice between two things of the same kind. It isn't. An LLC is a legal wrapper. An S-Corp is a tax election — a box you check with the IRS about how your profits get taxed. Most small S-Corps in America are LLCs that filed one form (2553). You don't choose between them; you choose whether your LLC keeps its default tax treatment or elects a different one.
So the real question is narrower and more useful: at what profit level does the S election start paying for its own hassle?
Where the money actually is
By default, a single-member LLC's entire profit flows to you as self-employment income, and you pay self-employment tax on it: 15.3% — 12.4% Social Security plus 2.9% Medicare — applied to 92.35% of net profit, with the Social Security portion capped at the 2026 wage base of $184,500. Income tax is separate and mostly unchanged by any of this; SE tax is the battlefield.
The S election changes the arithmetic: you become your company's employee, pay yourself a reasonable salary (which bears the same 15.3% as payroll tax), and take remaining profit as distributions — which escape SE/payroll tax entirely. The savings are 15.3% of whatever you can legitimately move from "salary" to "distribution." That's the whole trick. Everything else is the price of the trick.
The breakeven math, illustrated
Three scenarios, 2026 constants, single owner — salary figures purely illustrative:
$60,000 profit. Default SE tax: about $8,480. Elect S-Corp with a $48,000 reasonable salary — gross savings ≈ $1,100 before the election's running costs of roughly $1,500–$2,500/year. Net: roughly zero, possibly negative. At this level the election is usually not worth it.
$100,000 profit. Default SE tax: about $14,130. With a $60,000 reasonable salary, gross savings ≈ $4,900 — net of costs, call it $2,500–$3,500 a year. Real money; not life-changing. This is the gray zone where state rules and your admin tolerance decide.
$150,000 profit. Default SE tax: about $21,190. With a $75,000 reasonable salary, gross savings run ≈ $9,700; net of costs, $7,000–$8,000 a year — the number in this article's title. At this level, most owners who qualify should at least be having the conversation.
The pattern: the election's costs are roughly fixed while savings scale with profit, so there's a crossover — commonly somewhere around $75,000–$100,000 of consistent profit, though your state can move it substantially.
What the election costs you
Payroll, forever: you must run actual payroll on yourself — filings, deposits, W-2 — realistically a payroll service at $400–$800/year plus the discipline to use it. A separate tax return: Form 1120-S, typically adding $500–$1,500 to your annual prep. State surprises: California charges S-Corps a 1.5% franchise tax (minimum $800); New York City doesn't recognize the S election for city tax at all.
And a QBI interaction: the salary/distribution split also affects your Qualified Business Income deduction, sometimes partially offsetting SE savings. Genuinely CPA territory.
The reasonable salary trap
The IRS knows exactly how this strategy works, which is why the one rule with teeth is that your salary must be reasonable for the work you actually do. The cartoon version — $12,000 salary, $138,000 distribution — is the audit profile. Reasonableness is defensible when it's documented: what would you pay a stranger to do your job? Market data for your role and region is your evidence.
The decision rubric
Lean toward the election when: profit is consistently above ~$80–100k, you can document a defensible salary well below profit, your state doesn't claw back the savings, and payroll admin will actually get done. Lean against when: profit is variable or below the zone, you're in a hostile state or city, or the business is a side income you don't want to run payroll for.
If the admin is the part holding you back, that's a solvable problem — running compliant payroll and the filing calendar for S-elected small businesses is core Back-Office work, and a fixed-fee Advisory Health Check can put your real numbers through this math before you commit.
General information only — not tax, legal, or accounting advice. Figures use 2026 federal constants (15.3% SE tax; $184,500 Social Security wage base); salary figures are illustrative, and state treatment varies widely. Consult a CPA before making or revoking an S election.