QUESTION:
What’s the difference between a single-member LLC and an S-Corp?
ANSWER:
A single-member LLC is taxed as a sole proprietorship by default: all profits are subject to 15.3% self-employment tax. An S-Corp, however, allows the owner to pay themselves a reasonable salary (subject to payroll taxes) while taking the remaining profits as tax-free distributions. This split can save thousands in taxes once profits exceed about $50–60k annually.
The trade-off? S-Corps require formal payroll, annual filings, and stricter IRS rules, making them a better option for higher-earning businesses seeking tax efficiency.