Why S Corp vs. LLC Actually Matters for Founders Building Wealth

Hey founders —

This week we’re getting a bit more technical (and I think you’re going to find this super valuable).

The way you set up your business entity isn’t just about taxes or paperwork.
It’s about how easily you can turn business success into personal wealth.

So let’s break down, what you need to know about LLCs versus S Corps — and how this decision can impact how much you actually keep from your business.

First I Want to Mention Why This Even Matters

Your business structure really decides things:
1) How you pay yourself
2) How much tax you owe
3) How easy (or hard) it is to move money from business profit to personal wealth

LLC 101 — The Default Setup for Most Founders

A Limited Liability Company (LLC) first and for-most protects your personal assets. By default, the IRS treats a single-member LLC as a “disregarded entity” — And what that means is all profits flow directly onto your personal tax return.

So the LLC entity type is essentially electing how you pay yourself:
You take what is called owner’s draws (aka transfers from your business bank account to your personal account).

By selecting an LLC it also elects how you’re taxed:

You are going to have to pay Self-employment tax (15.3%) on all net profit. Plus federal and state income tax.

But in most cases LLCs are great for:

• Founders with net profits under ~$50k

• Side hustlers

• Early-stage businesses

But because there is no salary structure, retirement plan contributions and tax planning can get messy fast.

S Corp 101 — The Founder’s Tax Optimization Tool

An S Corp actually isn’t even a business type — it’s a tax election you make for your LLC or Corporation.

But this election affects how you pay yourself:

• Firstly, you must pay yourself a reasonable salary (subject to payroll taxes)

And any remaining profits can come out as distributions (not subject to self-employment tax)

Here is a breakdown of how you’re taxed in with an S-Corp election:

• Salary will be subject to: income tax + payroll tax

• Distributions will be subject to: income tax only

An S-Corp election is great for:

• Consistently profitable businesses ($60k+ net profit)

• Founders ready to formalize pay + retirement savings

• Anyone tired of handing 15.3% self-employment tax on everything

Example: Same $100k Net Profit, Very Different Outcomes

Why?
In an LLC, you pay self-employment tax (15.3%) on all net profit.
In an S Corp, you only pay that tax on your salary — distributions avoid it.

But the IRS expects your salary to be “reasonable” — don’t lowball or they may challenge it.

But There Are Differences in Admin & Ongoing Tasks:

To summarize this S Corp = more admin, but bigger tax savings (when you’re profitable enough)

So When Is an S Corp Worth It?

A basic rule of thumb is; once your net profit hits ~$60k–$80k, S Corp tax savings typically outweigh the added admin cost.

Under $50k profit? Stick with LLC simplicity.
Over $60k profit? Time to explore S Corp election with your CPA.
Either way: Start paying yourself intentionally — it’s the foundation of building wealth outside your business.

Want more?

Reply "S Corp" and I’ll send you a one-pager chart comparing LLC vs. S Corp
Reply "Chart" if you want an admin task checklist

Let’s build something that lasts—
– Michael Vanikiotis
CFP® | Founder