Your structure affects personal liability, how profits are taxed and your administrative burden.
The main choices
A sole proprietorship is the default for a solo business, with no liability protection. An LLC separates personal and business assets and offers flexibility in taxation. A C corporation is taxed separately and fits venture-backed businesses. An S corporation is a tax election available to eligible LLCs and corporations.
The S corp election
With an S corporation, the owner takes a reasonable salary, subject to payroll tax, and the remaining profit passes through without self-employment tax. This can save money when profits are substantial, but adds payroll, compliance and costs. Reasonable salary rules are strictly enforced.
Getting advice
State fees, annual reports and franchise taxes vary widely. Consult an attorney or CPA before choosing, especially if you have partners, employees or higher liability risk.
Try the numbers
Use our Self-Employment Tax Calculator to see this in practice. With its default example (Net self-employment profit: $90,000; Filing status: Single; Other income (W-2, etc.): $0.00), it shows total federal tax: $18,608. Adjust the inputs to match your situation.
Key takeaways
- An LLC provides liability protection and flexibility.
- S corp elections can reduce self-employment tax at higher profits.
- Consult a professional before electing.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.