Business Entity Tax Comparison 2026

Choosing the right entity structure is one of the most impactful tax decisions for business owners.

LLC (Default)

Pass-through taxation. Self-employment tax on all profits (15.3%). Simple formation. No payroll required. Full QBI deduction eligible.

S-Corporation

Pass-through taxation. Pay yourself reasonable salary (subject to SE tax). Remaining profits: no self-employment tax. Requires payroll. More complex. Saves 15.3% on distribution portion.

C-Corporation

Double taxation: corporate rate (21%) + dividend tax (0/15/20%). No SE tax on distributions. 100% health insurance deduction. Retained earnings taxed at 21%. Best for reinvestment strategies.

Tax Comparison Example ($200K Profit)

LLC: ~$56K total tax. S-Corp ($80K salary): ~$48K total. C-Corp: ~$42K corporate + $15K dividend = ~$57K.

QBI Deduction

LLC/S-Corp: 20% deduction on qualified business income. C-Corp: not eligible. Significant advantage for pass-through entities.

Decision Framework

Under $50K profit: LLC. $50K–$200K: S-Corp. Over $200K: S-Corp or C-Corp. Reinvesting all profits: C-Corp. Multiple investors: C-Corp.