Guides / S corp vs LLC
S corporation versus LLC in New York and Florida.
The comparison is usually framed wrongly. An LLC is a state law entity and an S corporation is a federal tax election, so an LLC can be an S corporation. The real question is whether to make the S election, and the honest answer depends heavily on where you operate, because New York State, New York City, and Florida each treat the election differently.
The federal question
What the election actually changes
Self-employment tax is the usual driver
An active member of an LLC taxed as a partnership generally pays self-employment tax on their whole distributive share. A shareholder-employee of an S corporation pays payroll tax only on wages; the remaining profit distributed is not subject to it. That difference is the reason most S elections get made, and it only produces real savings once profit comfortably exceeds a defensible salary.
The salary is not optional
The savings depend entirely on the wage being reasonable for the work performed. Set it too low and the IRS can recharacterize distributions as wages, with back payroll tax, penalties, and interest. See reasonable compensation.
The qualified business income deduction cuts both ways
Wages paid reduce the business income eligible for the 20 percent deduction, which argues for a lower salary. At higher income levels the deduction is limited by reference to W-2 wages paid, which argues for a higher one. The optimum is a calculation, and it moves with income each year.
The S corporation costs more to run
Payroll registration and processing, quarterly and annual payroll filings, a separate Form 1120-S with shareholder K-1s, a basis schedule, and a reasonable compensation position that has to be revisited annually. For a business earning modestly, that overhead can exceed the payroll tax saved.
Some owners cannot elect at all
S corporations may not have nonresident alien shareholders, more than 100 shareholders, corporate or partnership shareholders, or more than one class of stock. Foreign founders in particular are excluded, which is why their choice is between a C corporation and an LLC. See U.S. tax exposure for foreign founders.
By jurisdiction
Where the answer changes
New York State requires its own election
A federal S election does not carry over. New York requires a separate election on Form CT-6, and without it the corporation is taxed as a C corporation for New York State purposes even though it is an S corporation federally. Missing this is one of the more common and more expensive oversights in New York entity work.
New York City does not recognize S status at all
The City taxes S corporations at the entity level under the General Corporation Tax. The federal pass-through benefit simply does not exist for City purposes. A partnership or LLC operating in the City instead faces the Unincorporated Business Tax, which is also an entity-level tax but comes with a credit that individual owners can apply against their City personal income tax. For a business operating in the five boroughs, comparing those two regimes is more important than the federal analysis.
New York LLCs carry a publication requirement
A new LLC must publish notice in two newspapers designated by the county clerk for six consecutive weeks and then file a certificate of publication. In Manhattan the cost is routinely well into four figures. Failing to complete it suspends the LLC’s authority to carry on business in the state. Corporations have no equivalent requirement.
New York LLCs also pay an annual filing fee
LLCs and LLPs with New York source gross income file an annual fee return, with the fee scaled to New York source gross income. A single-member LLC treated as disregarded pays the minimum. It is small relative to the tax, but it is a filing that gets missed.
Florida makes the state layer almost irrelevant
Florida has no personal income tax, so there is no state-level pass-through benefit to capture or lose. C corporations pay Florida corporate income tax at 5.5 percent; S corporations and LLCs taxed as partnerships generally do not. What remains is the annual report due by May 1, with a $400 late penalty the state does not waive, and whatever sales and tangible personal property obligations the business has. In Florida the decision is close to a purely federal one.
This page is general information about how the rules work, not tax or legal advice for a specific situation. Facts change outcomes. Talk with the firm before acting on anything here.
A workable rule of thumb, and its limits
The S election tends to make sense once net profit meaningfully exceeds what you would have to pay someone to do your job, and once the business is stable enough to run payroll reliably. Below that, the compliance cost eats the saving. Above it, the saving compounds every year.
- Profit well above a defensible salary for the work
- Stable enough to run payroll every period without fail
- No shareholders who disqualify the election
- Operating outside New York City, or having compared GCT against UBT
- Willing to revisit the compensation figure annually
Questions
Common questions
Can my LLC be an S corporation?
Yes. An LLC can elect to be taxed as a corporation and then elect S status, or make the S election directly on Form 2553 in most cases. You keep the LLC as your legal entity and change only its tax treatment, which is usually simpler than converting to a corporation.
What is the deadline for the S election?
Generally within two months and fifteen days of the beginning of the tax year it is to take effect, or at any time in the preceding year. Late elections are frequently accepted under relief procedures where there was reasonable cause and the entity has otherwise behaved as an S corporation, so a missed deadline is usually fixable.
Does the S election help if I operate in Manhattan?
Less than you would expect. New York City taxes S corporations at the entity level, so the City layer stays regardless. The federal payroll tax saving still applies, but the City comparison against the Unincorporated Business Tax has to be run before assuming the election is favorable.
I have partners. Does that change anything?
Considerably. Multiple owners bring allocation questions, and S corporations allow only one class of stock, which means distributions and allocations must be strictly proportionate. Partnerships permit special allocations and much more flexible economics, which is often worth more than the payroll tax saving.
What if I move the business from New York to Florida?
The federal election continues, but the state analysis changes and so does the entity’s registration position. Expect to address foreign qualification or dissolution in New York, a final New York return, and whether New York still has a claim on income sourced there. See moving from New York to Florida.
Run the numbers on your actual profit.
The right answer depends on profit, payroll, owner count, and where you operate. We will model both structures on your figures rather than on a rule of thumb.