Single-Member LLC vs. S-Corp vs. Partnership: Which Structure Saves You More?

One of the biggest tax decisions a small business owner makes isn't about deductions or software — it's about entity structure. Whether you operate as a single-member LLC, elect S-Corp taxation, or run a partnership changes how much self-employment tax you pay, how much paperwork you file, and how exposed your personal assets are.

SINGLE-MEMBER LLC

The IRS treats a single-member LLC as a “disregarded entity” by default: all profit flows onto your personal return (Schedule C), and all of it is subject to self-employment tax (15.3%), on top of income tax.

• No separate business tax return

• No payroll required for yourself

• Still gives you liability protection a sole proprietorship lacks

PARTNERSHIP

A partnership files its own return, Form 1065, and issues each partner a Schedule K-1. The business itself pays no federal income tax — profit passes through to each partner.

• Partners owe self-employment tax on their share of profit, same as an LLC

• Good for two or more owners who want a straightforward split

S-CORPORATION

An S-Corp is a tax election (Form 2553), not a separate entity type. You must pay yourself a “reasonable salary” through payroll — only that salary owes Social Security/Medicare tax. Remaining profit can be a distribution, which doesn't.

• Requires running payroll and issuing yourself a W-2

• Files a separate return, Form 1120-S

• IRS audits S-Corps that pay an unreasonably low salary

Structure	SE Tax	Paperwork	Best For
Single-Member LLC	On all profit	Minimal	Starting out
Partnership	On each share	Moderate (1065+K-1s)	2+ owners
S-Corp Election	Only on salary	Higher (payroll+1120-S)	Profitable single owner

WHICH STRUCTURE SAVES YOU MORE?

It depends on your profit level. Modest income → S-Corp overhead can eat the savings, so a plain LLC wins. Once profit consistently clears a comfortable margin above a reasonable salary, the S-Corp election usually pays for itself.

WHICH STRUCTURE FITS YOUR SITUATION?

• Freelancer/solo, modest income → Single-member LLC.

• 2+ owners, simple split → Partnership.

• Consistently profitable single owner → S-Corp election.

• Passive owner → focus on liability, not reasonable-salary rules.

TALK TO A CPA BEFORE YOU DECIDE

Undoing a bad entity choice later costs more than getting it right the first time. This is general information, not personalized advice. Call our office at 504-315-2667 to talk through your numbers.