“Should I be an LLC or an S-corp?” is one of the most common questions we get from New York City business owners — and a lot of bad advice floats around online. Here's the straight answer.
First: LLC and S-Corp Are Not the Same Type of Thing
An LLC is a legal structure (how your business is organized). An S-corp is a tax election (how the IRS taxes you). You can be an LLC and elect to be taxed as an S-corp. So the real question isn't “LLC or S-corp” — it's “should my LLC elect S-corp tax treatment?”
The Tax Difference That Matters
As a default LLC, all your business profit is hit with self-employment tax (about 15.3%). With an S-corp election, you split your income into a reasonable salary (subject to payroll taxes) and distributions (not subject to self-employment tax). That split is where the savings come from.
When Does an S-Corp Actually Save Money?
The election only pays off once profits are high enough that the tax savings beat the added costs (payroll processing, a separate return, extra bookkeeping). As a rough rule of thumb, an S-corp starts making sense around $60,000–$80,000+ in annual net profit — but the right number depends on your specific situation, and in NYC, state and city taxes change the math.
The Catches People Miss
- You must pay yourself a “reasonable salary” — pay too little and the IRS can reclassify it.
- You'll need to run real payroll, which adds cost and admin.
- New York City's tax rules can erode some of the federal savings — this is exactly where local advice matters.
How to Decide
The honest answer: it depends on your profit, your goals, and your willingness to handle payroll. A quick review of your numbers usually makes the right choice obvious. At Li CPA Group, we run the actual math for NYC owners and tell you whether an S-corp election would save you money — before you commit.