“Should I be an LLC or an S-Corp?” is one of the most common questions we hear from Orlando business owners — and the honest answer is that it is a bit of a trick question. An LLC is a legal structure; an S-Corp is a tax election. You can have both. The real decision is how you want your LLC to be taxed.
How an LLC is taxed by default
By default, a single-member LLC is a “disregarded entity” and a multi-member LLC is taxed as a partnership. Either way, the profit flows straight to your personal tax return, and the entire net profit is subject to 15.3% self-employment tax (Social Security + Medicare) on top of income tax.
What the S-Corp election changes
By filing Form 2553, your LLC can elect to be taxed as an S-Corporation. Now your income is split into two parts:
- A reasonable salary you pay yourself through payroll — subject to payroll (FICA) taxes.
- Distributions of the remaining profit — not subject to the 15.3% self-employment tax.
A simple example
Say your LLC nets $120,000. As a default LLC, roughly $18,000 goes to self-employment tax. Elect S-Corp status, pay yourself a reasonable $60,000 salary, and payroll tax applies to that $60,000 (about $9,200); the remaining $60,000 taken as a distribution avoids the 15.3%. That is a meaningful annual saving — often several thousand dollars.
The catch: a reasonable salary (and payroll costs)
The IRS requires S-Corp owners to pay themselves a reasonable salary for the work they do — you cannot take $5,000 in salary and $115,000 in distributions. Running payroll also adds costs: payroll filings, state unemployment, and more bookkeeping. As a rule of thumb, the S-Corp election starts to pay off once your profit is consistently $40,000–$50,000 or more above a reasonable salary.
Florida-specific advantages
- No state income tax in Florida — so your planning focuses on federal tax and payroll.
- File your annual report with Sunbiz by May 1 to keep the entity active.
- Keep business and personal finances strictly separate to protect liability and simplify the S-Corp math.
How to decide
Don’t guess — run the numbers against your actual profit and a realistic salary. The S-Corp election also has filing deadlines, so timing matters. A short conversation with an advisor usually pays for itself many times over.