Reviewed October 2026. This is general information, not tax advice for your situation.
If your LLC is making steady money, someone has probably told you to “become an S corp.” Whether that actually saves you money depends mostly on your profit, and the decision is easier than it sounds. I help business owners in Houston, Spring, Humble and Atascocita work through it with their real numbers.
First, they aren’t two different businesses
An LLC is a legal entity you form with the Texas Secretary of State. An S corporation is a tax election you make with the IRS. Your LLC can stay an LLC and still be taxed as an S corporation by filing Form 2553. Nothing about your legal setup has to change.
How each one is taxed
- An LLC taxed as a sole proprietorship or partnership. All of your profit is subject to self-employment tax of 15.3% (12.4% Social Security up to $184,500 for 2026, plus 2.9% Medicare), in addition to income tax.
- An LLC taxed as an S corporation. You pay yourself a reasonable salary through payroll. Only that salary carries Social Security and Medicare tax. The rest of the profit comes to you as a distribution, which isn’t subject to those taxes.
Texas has no state income tax either way. Both pay the same Texas franchise tax, and most small businesses owe none, though they still have to file. See the franchise tax no-tax-due guide.
A simple example
Say your business makes $120,000 in profit.
| LLC (no election) | S corporation | |
|---|---|---|
| Owner salary | none | $60,000 |
| Social Security and Medicare | about $16,955 | about $9,180 |
| Difference | about $7,775 less |
That’s before income tax effects and before what the S corporation costs to run, so the real saving is smaller. The free LLC vs. S-Corp guide walks through the full math.
What an S corporation costs to run
- Payroll. You need a payroll service, quarterly payroll returns and W-2s, plus Texas unemployment tax on your wages.
- A second tax return. The S corporation files Form 1120-S by March 15, and the late penalty is charged per owner, per month.
- A reasonable salary. The IRS looks at what someone doing your job would be paid. Paying yourself too little is the most common S corp problem the IRS challenges. See my reasonable compensation study.
When it usually doesn’t make sense
- Your profit is low enough that the payroll costs eat up the saving.
- The business is losing money or isn’t steady yet.
- You plan to bring in owners who can’t hold S corporation stock, such as another company or a nonresident.
- You want to split profits in a way that doesn’t match ownership. An S corporation has to divide profit strictly by ownership share.
Timing
To be taxed as an S corporation for 2027, file Form 2553 by March 15, 2027. If you missed a deadline, late-election relief is often available.
Next step
Get the free LLC vs. S-Corp guide, or have me run your actual numbers with an entity review. Book a free 15-minute consultation.
Sources: IRC §§ 199A, 1361(b), 1362(b), 1366, 1401 and 3111; Rev. Rul. 74-44; Watson v. United States, 668 F.3d 1008 (8th Cir. 2012); IRS Fact Sheet 2008-25; Rev. Proc. 2013-30; SSA 2026 wage base.
