Which business type is better for self-employed people – LLC or S-Corp? This episode takes self-employment tax a step further with a look at the pros & cons of LLCs and S-Corps, including how S-Corps help self-employed people save on employment taxes (but add more complexity and paperwork). At the end, you should understand the basics of sole proprietors, partnerships, LLCs, and S-Corps, and how each of them gets treated by the IRS when it comes to income & employment tax.

Key Takeaways:

• Sole proprietors & partnerships are simple to run, but offer no distinction between owner and business when it comes to income, profits, or liability.
• LLCs offer liability protection between owner(s) and business, but they don't change your tax treatment. LLC members get taxed the same way as sole proprietors & partners.
• The S-Corp Election allows LLCs to be treated as S-Corps for tax purposes. That means you can treat yourself as an employee and pay yourself a salary.
• The remaining non-salary profits avoid employment tax when they flow from an S-Corp to shareholders, but do not avoid income tax.

Links
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The IRS site on S-Corps