S Corp vs. LLC: How (and Why) You Can Have Both For Your Solo Business

As a solopreneur, the business structure you choose carries a lot of weight. It impacts everything from how much protection you have to how much tax you pay.

S Corps and LLCs are two of the most common business entities for solo businesses. But here’s something that might surprise you about the S Corp vs. LLC debate: you don’t need to choose just one. That’s right—you can have both.

Confused? Stick with us. We’re digging into these popular business structures and giving you the information you need to find the right fit for your business-of-one. 

S Corp vs. LLC: Breaking Down the Different Business Entities

Let’s start with a quick explainer of the different business entities that are most frequently used among the self-employed:

• Sole proprietor: Not to be confused with solopreneur, sole proprietorship is an actual, recognized business structure in which the business and the owner are the same entity. This means you are personally liable for all business debts and legal claims, and your taxes are paid on your personal return. The major perk of this option is that there’s no setup involved, as it’s the automatic and default option. So, if you haven’t done any legwork to establish a formal business entity, then you’re doing business as a sole proprietor.
• LLC: A Limited Liability Company (LLC) gives you far more liability protection because it separates your business finances and obligations from your personal ones. Your personal assets (think things like your personal savings account or your home) aren’t at risk if your business goes into debt or gets into legal trouble.
• S Corp: While it’s commonly grouped with business entities, an S Corp isn’t actually an entity on its own—it’s a tax status. It’s something you can elect on top of an established business entity. So, for example, your business might be an LLC that’s taxed as an S Corp. An S Corp allows you to split your income into two buckets: a reasonable salary and your business profits. Unlike an LLC or sole proprietorship, you only pay self-employment tax on your salary, which is where the major savings come into play. 

Those are the broad strokes, but let’s make this even simpler with a chart that compares the nuts and bolts of these different options:

The big thing you need to answer here is this: Do you want to operate as a sole proprietor or get the protection of a formal business structure? If you opt for establishing a business entity, then you’ll likely set up an LLC. Don’t let the initial setup work or ongoing maintenance scare you off—Lettuce can help you with all of it.

You can stop there with just your LLC. But, it’s also worth figuring out if filing an S Corp election (remember, this is in addition to your LLC) could lead to meaningful tax savings for you. Speaking generally, if you’re earning upwards of $60,000 per year, an S Corp is a smart move. 

Don’t want to crunch the numbers yourself? We can do it for you.

Curious if an S Corp is right for you?

Try the Lettuce Tax Calculator to see how much more you can take home each year.

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5 Common Myths About LLCs and S Corps

Whether you’re new to the S Corp vs. LLC discourse or have been in the loop on their differences for a while, you’ll likely see some common misconceptions floating around. Let’s debunk some of the biggest ones so you can make a choice that’s rooted in reality.

1. You Need to Pick Just One

So many people talk about LLCs and S Corps like an either/or thing, but that’s not accurate. An S Corp is an election on top of your LLC. While many people refer to their businesses simply as “S Corps,” technically speaking, they’re operating businesses that are taxed as S Corps. That just doesn’t roll off the tongue quite as easily. 

2. An LLC Offers Tax Savings on Its Own

Establishing an LLC has its advantages—mainly, protecting your personal assets if you get into any sort of business trouble. However, establishing an LLC doesn’t inherently offer any tax savings. Your LLC taxes work exactly the same way they would as a sole proprietorship. You need to complete an S Corp election to alter your tax situation. 

3. You Can Form an S Corp From the Start

Sure, you can file an S Corp election early on in your solopreneur journey, but keep in mind that you can only file an S Corp election after forming a legal business entity (like your LLC). Put simply, you need to complete your LLC formation first—you can’t jump right into an S Corp election. 

4. S Corps Are Only for Big Businesses

Since S Corp stands for “S Corporation,” it’s easy to assume that S Corps are only for large companies. That’s not the case. S Corps are a great fit for many solo business owners—especially high-earners.

Not sure if an S Corp is the right move for you? Take our quick quiz to find out.

5. You Need an Accountant to Set This Up

Can an accountant be helpful for your solo business? Absolutely. But it’s not a necessity. You can set up your LLC and complete your S Corp election yourself. Or, you can skip the dirty work and let Lettuce do all of it (yep, even the paperwork) for you. 

S Corp vs. LLC: Actually, You Don’t Need to Choose

S Corps and LLCs are often pitted against each other in the self-employed space. You’re made to feel like you need to choose one or the other.

In reality, they’re more co-stars than competitors. In fact, you need a business entity (like an LLC) to file an S Corp election. Going this route means you can reap all of the benefits of both an LLC and an S Corp, from the liability protection to the major tax savings.

The bottom line? You don’t have to pick one—you can (and maybe even should) have both. 

Still feeling a little overwhelmed? We’ve got you. Register for S Corp 101 to learn more about how S Corps can help you keep more of your hard-earned money (no painful paperwork or processes required).