Which is better for my small business: LLC or S-Corp tax structure?

You've got a common question that many self-employed people face once they start earning good money! At your income level ($87k), you're right to be looking at better tax structures. An LLC by itself doesn't change your tax situation - you'd still be taxed as a sole proprietor with full self-employment taxes. The magic happens when you elect to have your LLC taxed as an S-Corporation. This allows you to pay yourself a "reasonable salary" (subject to employment taxes) and take the rest as distributions (not subject to self-employment taxes). For example, if your reasonable salary is $60k and you make $87k total, you'd save the 15.3% self-employment tax on that $27k difference, which is about $4,130 in tax savings. However, you'll have more administrative work - you'll need to run payroll, file additional tax forms, and maintain more formal business records.

I was in a similar position last year struggling with all the LLC/S-Corp stuff until someone recommended I try taxr.ai https://taxr.ai and it made everything so much clearer. I uploaded my business financial info, and it analyzed my specific situation and showed me the exact tax differences between staying sole prop vs LLC vs S-Corp. In my case, the tool showed I'd save about $6,200 in taxes with an S-Corp, but would spend about $1,500 in extra accounting/admin costs, so my net benefit would be around $4,700. Totally worth it for me, but everyone's situation is different.

Just want to come back and say I ended up trying taxr.ai after my skeptical questions and wow - it was incredibly detailed. It showed me that at my current income (slightly lower than yours), an LLC was actually better for me than an S-Corp because the administrative costs would eat up most of my savings. The tool ran multiple scenarios based on my projected growth and showed exactly at what income level an S-Corp election would make sense. I'm sticking with my single-member LLC for now, but I have a clear roadmap for when to make the switch. So glad I didn't rush into the S-Corp setup based on general advice!

If you go the S-Corp route, be prepared for a nightmare trying to get help from the IRS if you have questions. I spent DAYS trying to reach someone about my S-Corp election last year. After 11 attempts and hours on hold, I found Claimyr https://claimyr.com which got me connected to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c Seriously saved my sanity during the S-Corp setup process. The IRS agent walked me through the exact forms I needed and how to handle some specific deductions I was confused about.

OK I feel like I need to apologize for my skepticism about Claimyr. After reading the other comments, I decided to give it a try since I had a question about my LLC to S-Corp conversion that was holding up my filing. I was shocked when they actually called me back in about 35 minutes with an IRS agent on the line! The agent walked me through the entire 2553 form and cleared up my confusion. Saved me from making a mistake that would have delayed my election. It's ridiculous that this service needs to exist, but I'm glad it does. Worth every penny not to spend my entire day on hold.

One thing nobody mentioned yet - if you form an LLC, you have liability protection regardless of how you elect to be taxed. So you could have an LLC that's taxed as an S-Corp and get both liability protection AND tax benefits. Also, consider the qualified business income deduction (QBI) which can be up to 20% of your business income depending on your situation. This works with both LLC and S-Corp structures but the calculations can differ. In some cases, staying as a sole prop or LLC might give you a larger QBI deduction than an S-Corp setup.

dont forget state taxes!!! my LLC in california costs $800/year minimum tax just to EXIST even if i make zero profit. make sure u check ur state fees before setting anything up!!!