There are dozens of articles comparing LLCs and S-Corps online. Most of them use the same vague phrases — "pass-through taxation," "self-employment tax savings," "reasonable salary" — and stop before the math. This is the version with the actual numbers.
We'll use a single example — a Texas-based consultant with $150,000 in net profit — and run it through both structures completely. By the end, you'll know exactly what the difference is, what it costs, and whether the switch makes sense for a business at that income level.
The Setup: Same Business, Two Tax Treatments
Meet the hypothetical: a single-member LLC in Texas, no employees, $150,000 in net profit after all business expenses. The owner is the only worker in the business and files a calendar-year return.
Under default LLC taxation, this person files a Schedule C and pays self-employment tax on every dollar of profit. Under S-Corp taxation, they split that profit into a salary and distributions — and only the salary portion is subject to payroll taxes.
Both are pass-through structures. In both cases, income flows to the owner's personal return and is subject to federal (and any applicable state) income tax at the same rate. The difference is only in self-employment and payroll taxes — not in income tax. This is a critical point most comparisons blur.
How a Default LLC Is Taxed in Texas
A default single-member LLC is a "disregarded entity" for federal tax purposes. All net profit flows directly to Schedule C on your personal return.
Self-employment tax applies to 92.35% of net profit (a technical adjustment the IRS allows). At $150,000 net profit, that's $138,525 subject to SE tax. The SE tax rate is 15.3% up to the Social Security wage base ($168,600 in 2026), then 2.9% Medicare on anything above.
on Schedule C
(15.3% on $138,525)
The owner also gets to deduct half of SE tax from gross income (a deduction on Schedule 1), which softens the blow slightly — but the core liability is clear.
There's no payroll, no separate business return, no quarterly deposits beyond estimated income tax payments. Simple, cheap to administer, and predictable.
How an S-Corp Is Taxed in Texas
Under S-Corp taxation — achieved by filing IRS Form 2553 — the LLC is still an LLC under Texas law, but the IRS now treats it as a small business corporation for tax purposes.
The key change: the owner becomes a shareholder-employee. They must pay themselves a reasonable salary for the work they perform. That salary is subject to payroll taxes (FICA: 7.65% employee share + 7.65% employer share = 15.3% total). The remaining profit above the salary flows to the owner as a distribution — not subject to payroll taxes.
For a business generating $150,000 in net profit, a common reasonable salary benchmark for a skilled professional in the Greater Houston market might be $75,000. (The specific number depends on industry, role, and BLS data — but $75K is a defensible midpoint for many professional services businesses at this income level.)
(subject to payroll tax)
(no payroll tax)
Payroll tax on a $75K salary: approximately $11,475 (15.3%). Compare that to $21,195 for the default LLC. The gross tax savings before compliance costs: roughly $9,720 per year.
Want us to run your specific numbers?
The right salary benchmark and breakeven point depend on your industry, income level, and existing setup. We'll model both structures with your actual numbers in a consult.
The Cost Side of the Equation
The gross savings figure of ~$9,720 looks great — until you subtract what the S-Corp structure actually costs to run. These are real, recurring annual costs you'll pay whether the election saves you money or not:
- Payroll service (Gusto, ADP, or similar): $600–$1,500/year for a single-employee payroll. You must run actual payroll — not just transfer money to yourself.
- Additional CPA fees: An S-Corp requires a separate Form 1120-S business return on top of your personal return. Expect $1,000–$2,500/year in additional CPA fees over a standard LLC return.
- Texas franchise tax: Both LLCs and S-Corps are subject to Texas's franchise tax (margin tax). For most businesses under $2.47M in revenue, this is minimal — but it's still a filing requirement and small cost.
- Registered agent (if not already in place): $50–$150/year, though most LLCs already have this.
Total additional annual cost: $2,000–$4,500/year in the Houston area, depending on your payroll complexity and CPA. We'll use $3,000 as a mid-range estimate.
The Net Advantage (and Where It Breaks Even)
Here's the full comparison at $150K net profit:
(S-Corp vs. default LLC)
~$3,000 compliance costs
At $150K in net profit, the S-Corp election generates a meaningful net advantage — roughly $6,000–$7,000 per year after all costs. That's a real, bankable difference.
Now run it backward to find the breakeven point. If compliance costs are $3,000/year, you need gross SE tax savings of at least $3,000 to justify the election. Working backwards from the SE tax math, that breakeven falls at approximately $55,000–$65,000 in net profit for most professional service businesses in Texas. Below that, the structure costs more than it saves.
"The S-Corp election at $150K in net profit is almost always a clear financial win. At $50K, it's often a wash or a loss. The math is what decides — not the concept." — Darshi Kasotia, CPA
What the Comparison Misses: Non-Tax Factors
The numbers above cover the tax math. But there are non-financial factors that sometimes tip the decision — in either direction:
Reasons the S-Corp structure adds value beyond tax savings
- Payroll infrastructure already needed: If you plan to hire employees anyway, the marginal cost of adding S-Corp payroll is small.
- Cleaner business/personal separation: Running payroll forces cleaner accounting habits that benefit bookkeeping and audit readiness.
- Established benefit plans: S-Corp officers can access certain fringe benefit structures more efficiently.
Reasons to stay a default LLC despite passing the math test
- Highly variable income: If your net profit swings significantly year to year, the fixed compliance cost of an S-Corp may not be worth it in lean years.
- Planning to sell soon: Certain business sale structures are simpler under an LLC than an S-Corp.
- High administrative burden tolerance is low: Some owners simply don't want the additional complexity, even if the math works.
So Which Should You Choose?
At $150K in net profit, the S-Corp election makes clear financial sense in most cases — the net benefit after compliance costs is substantial and consistent year after year. The payroll requirement is manageable, and the administrative overhead is predictable.
Below $60K in net profit, the math usually doesn't work. Between $60K and $80K, it depends heavily on your specific compliance costs and salary benchmark. Above $80K, the net advantage grows with income and the case for electing becomes progressively stronger.
The most important thing: don't make this decision based on general articles (including this one). Have a CPA run the numbers with your actual net profit, your industry-appropriate salary benchmark, and a real quote for payroll and the additional return. The answer will be clear, and it'll be your answer — not a generalized one.
If you're already working with us on tax planning or bookkeeping, this analysis is part of our annual review. If you're not, a consult is the right place to start.
