“Should I be an LLC or an S corp?” is one of the most common questions we hear from Georgia business owners. It’s also a bit of a trick question — because you can be both.
One is a legal entity, the other is a tax election
A limited liability company (LLC) is a legal structure created under state law. You form one by filing Articles of Organization with the Georgia Secretary of State, and it helps separate your business liabilities from your personal assets.
An S corporation isn’t something you form with the state. It’s a federal tax election, made on IRS Form 2553, that changes how a corporation’s — or an LLC’s — income is taxed. So the real question is usually: should my LLC elect to be taxed as an S corporation?
How an LLC is taxed by default
Out of the box, the IRS doesn’t tax an LLC as a separate entity:
- A single-member LLC is “disregarded.” Its profit is reported on Schedule C of your personal return.
- A multi-member LLC is taxed as a partnership. It files Form 1065 and issues a Schedule K-1 to each owner.
Either way, profit flows through to the owners, and an active owner’s share is generally subject to self-employment tax — 15.3% on earnings up to the Social Security wage base and 2.9% for Medicare above it — on top of income tax.
How the S corp election changes the math
With an S corporation election, owners who work in the business become employees. You pay yourself a reasonable salary through payroll, which is subject to Social Security and Medicare taxes like any employee’s wages. Remaining profit can be paid out as distributions, which aren’t subject to those payroll taxes.
Here’s a simplified illustration with round numbers:
| $100,000 of net profit | Default LLC | LLC taxed as an S corp |
|---|---|---|
| Paid to you as salary | None | $50,000 |
| Paid to you as profit or distributions | $100,000 | $50,000 |
| Social Security and Medicare taxes | About $14,100 (self-employment tax) | About $7,650 (payroll taxes on salary) |
That’s roughly $6,500 less in Social Security and Medicare taxes — before the extra costs of running an S corp. Income tax still applies to all of the profit either way, and the election can also change your qualified business income deduction, which is why we model both scenarios. Your numbers will differ.
What an S corp costs to run
The savings aren’t free. An S corp typically means:
- Running payroll for yourself, with quarterly and annual filings and state unemployment registration.
- A separate tax return (Form 1120-S), generally due March 15 for calendar-year businesses.
- A defensible salary. Paying yourself far less than you’d pay someone else to do your job invites IRS scrutiny.
- Tighter bookkeeping, since salary, distributions and reimbursements all need to be recorded correctly.
Georgia recognizes the federal S election. The state also offers an elective pass-through entity tax for S corporations and partnerships that can create additional federal savings for some owners.
When the election usually makes sense
There’s no universal break-even point, but the S corp election tends to pay off when:
- Your profit is consistent and comfortably exceeds a reasonable salary for the work you do.
- You expect that level of profit to continue, not just for one strong year.
- You’re ready to run payroll and keep clean books — or have someone who does it for you.
If your profit is modest or unpredictable, staying a default LLC is often simpler and cheaper.
Deadlines to know
For the election to cover a full calendar year, Form 2553 is generally due within two months and 15 days of the start of the tax year — March 15 for most businesses. If you miss it, the IRS offers relief for many late elections under Revenue Procedure 2013-30, generally within three years and 75 days of the intended effective date, when you have reasonable cause.
Georgia LLCs and corporations also file an annual registration with the Secretary of State between January 1 and April 1 each year.
Protect the liability shield
Whichever structure you choose, keep business and personal money separate: a dedicated bank account, a written operating agreement and clean records. Mixing funds can weaken the protection your LLC provides.
Let’s run your numbers
The right answer depends on your profit, your plans and your appetite for paperwork. Our new business setup team can form your LLC and file the election, and our tax planning team will compare both scenarios side by side. If you choose the S corp route, we’ll set up payroll so your salary runs smoothly. Book a free consultation to get started.
Disclaimer: This article is general information, not tax, legal or investment advice for your specific situation. Tax laws change and individual circumstances vary, so please consult a qualified professional before acting on it. Reading this article does not create a client relationship with JK Edwards & Company.
