An LLC is a legal structure. An S corporation is a tax election. Most Washington LLCs that elect S-corp status are asking one question: will it lower my self-employment tax by more than it costs to run?
How the two are taxed
- LLC taxed as a sole proprietor or partnership: all profit is subject to self-employment tax.
- LLC electing S-corp treatment: you pay yourself a reasonable salary, which is subject to payroll tax. Remaining profit passes through as distributions that are not subject to self-employment tax.
The Washington angle
Washington has no personal income tax, so the question is almost entirely about federal self-employment tax versus the cost of payroll. That makes the math simpler than in most states. It does not remove state obligations: Washington B&O tax is on gross receipts regardless of structure, and payroll brings state reporting for unemployment insurance, L&I, PFML, and WA Cares.
When it tends to pay off
As a rule of thumb, once business profit passes $50,000–$60,000 a year, the self-employment tax savings often outweigh the added payroll and filing cost. Below that, they often do not. Your salary level matters as much as your profit.
What it costs to maintain
- Running payroll, either on your own or through a CPA
- A separate corporate return (Form 1120-S) each year
- Reasonable compensation that you can defend
Do not guess
The calculator estimates the savings at your numbers. Treat the output as a starting point and bring it to a consult, where we check it against your real salary, benefits, and growth plans.