One of the most common questions we hear from Georgia business owners is whether they should be an LLC or an S-Corp. The short answer: it depends on how much you earn, how you pay yourself, and where you want the business to go. The long answer takes about ten minutes to read — and it can be worth thousands of dollars a year in tax savings.

First, a quick clarification

An S-Corp is not an entity type — it is a tax election. You form an LLC (or a corporation) with the Georgia Secretary of State, and then you file IRS Form 2553 to be taxed as an S-Corp. The legal structure stays the same; the tax treatment changes.

How a default LLC is taxed

A single-member LLC is a "disregarded entity" — the IRS treats it like a sole proprietorship. All net profit flows to your personal return and is hit with two things: income tax and self-employment tax (currently 15.3% for Social Security and Medicare on the first $168,600 of net earnings in 2024, with the 2.9% Medicare portion continuing above that). If your LLC nets $100,000, that is roughly $14,000+ in SE tax before you calculate income tax.

How an S-Corp changes the math

With an S-Corp election, you must pay yourself a reasonable salary through payroll. Self-employment tax applies only to that salary — not to the remaining profit, which you take as a distribution. On a $100k business, paying yourself a $60k salary means the other $40k skips the SE tax. That is roughly $6,000 saved per year — minus payroll, bookkeeping, and tax-prep costs.

The real costs of running an S-Corp

• Payroll service: $600–$1,200/year
• S-Corp tax return (Form 1120-S): $800–$1,800/year
• Bookkeeping: non-negotiable — usually $150–$500/month
• Reasonable-salary compliance: set it too low, and the IRS can reclassify distributions as wages and charge back taxes plus penalties.

Add it up and an S-Corp typically costs $2,000–$4,000/year to operate. That is why the break-even sits around $50k–$80k of net profit — below that, the compliance overhead eats the savings.

When an LLC is still the right call

Choose the default LLC treatment when your business is new, revenue is under $50k, you want minimal paperwork, or you plan to reinvest most of your profit into growth. You can always file the S-Corp election later — you don't have to decide forever on day one.

When to seriously consider S-Corp

Consider the S-Corp election when your net profit consistently clears about $80,000, you have reliable bookkeeping in place, you can afford to run real payroll, and you plan to keep operating the business (rather than sell it soon). The bigger the gap between reasonable salary and total profit, the bigger the savings.

Exit strategy changes everything

If you plan to raise venture capital, sell to a strategic buyer, or issue equity to employees, an S-Corp is often the wrong structure. S-Corps cap you at 100 shareholders, only one class of stock, and no corporate owners. Most sophisticated investors require a Delaware C-Corp. Have that conversation before you elect S-Corp status.

Not sure where you stand? Our RMS Business Success Index™ takes about 15 minutes and flags whether your current structure is helping or hurting you. If you are still at the formation stage, our guide on how to start a business in Georgia walks through entity choice, the Secretary of State filing, EIN sequencing, and the local licensing layers in order.