S Corp vs. LLC in Georgia: Which One Saves You More on Taxes?

Choosing the right business structure is one of the biggest decisions you’ll make as an entrepreneur in Georgia. Two popular options—S corporations (S Corps) and limited liability companies (LLCs)—each offer liability protection, but they differ when it comes to taxation. In many cases, one structure can save you more on taxes than the other. This guide will walk you through the key differences and help you decide which option makes sense for your Georgia business.

Understanding the Basics

LLC
An LLC is a flexible entity that provides personal liability protection. Profits and losses “pass through” to members (owners) and report on personal tax returns. By default, a single-member LLC is treated as a “disregarded entity,” and a multi-member LLC is treated as a partnership for tax purposes.

S Corp
An S Corp is a tax designation available to certain corporations and LLCs. To qualify, you file Form 2553 with the IRS. Once approved, the entity’s income also passes through to shareholders’ personal returns, but with one big twist: salary vs. distribution rules.

Payroll and Self-Employment Tax Savings

The most significant tax advantage of an S Corp comes from how payroll and self-employment taxes apply:

• LLC Members: All net earnings from the business are subject to self-employment tax (15.3% covering Social Security and Medicare) plus income tax on those earnings.
• S Corp Shareholders: Only the salary you pay yourself is subject to Social Security and Medicare taxes. The remaining profit is distributed as dividends and avoids self-employment taxes.

Example:
Imagine your Georgia business nets $100,000 in profit.

• If you’re an LLC owner, you’d pay self-employment taxes on the entire $100,000.
• If you elect S Corp status and pay yourself a reasonable salary of $60,000, you’d pay payroll taxes on $60,000. The remaining $40,000 in distributions would escape those additional 15.3%.

These savings can add up—potentially thousands of dollars each year.

Reasonable Salary Requirement

The IRS requires S Corp shareholder-employees to pay themselves a “reasonable salary” before taking distributions. Setting that salary too low raises audit risks, while setting it too high reduces your tax savings. Consider:

• Industry norms
• Your role and hours worked
• Comparable salaries in the Atlanta market

Working with a local accountant can help you choose a defensible salary that maximizes tax benefits without triggering red flags.

Georgia State Taxes

Georgia treats both LLC income and S Corp distributions as personal income, taxed at a flat rate of 5.75%. However, because S Corp distributions reduce your net earnings subject to self-employment tax, the overall tax burden can still be lower.

LLCs taxed as partnerships must pay state and federal income tax on all profits. S Corps do the same, but the portion classified as distributions avoids the additional 15.3% self-employment tax, offering a net advantage.

Compliance and Administrative Costs

Electing S Corp status and maintaining that status involves more paperwork and formalities:

• Filing Form 2553 with the IRS for S Corp election
• Running payroll and issuing W-2s to shareholder-employees
• Holding annual meetings and keeping minutes (required for corporations)

LLCs enjoy greater simplicity:

• Fewer required filings at the state level
• No mandatory payroll if all members treat distributions as pass-through income
• Less formal governance requirements

When weighing tax savings, factor in the extra time or accounting fees that S Corp compliance may demand.

Which Structure Fits Your Georgia Business?

Consider an LLC if:

• Your profits are modest (so self-employment tax liability is manageable)
• You value simplicity and minimal administrative burden
• You plan to reinvest profits back into the business rather than drawing large distributions

Consider an S Corp if:

• Your net profits exceed what you’d reasonably pay yourself as salary
• You can manage payroll tasks or afford professional support
• You want to reduce self-employment tax liability on distributions

In many cases, business owners find that once profits reach $50,000–$70,000 a year, the tax savings from S Corp status outweigh the extra administrative costs.

Steps to Elect S Corp Status

1. Form your LLC or Corporation. Ensure you meet Georgia requirements for formation.
2. Obtain an EIN. You’ll need a federal Employer Identification Number for tax filings and payroll.
3. File Form 2553. Submit to the IRS by March 15 of the year you want S Corp status to begin (or within 75 days of formation).
4. Set up payroll. Use accounting software or a payroll service to process wages and withhold taxes.
5. Maintain records. Track salary payments, distributions, meeting minutes, and other S Corp formalities.

Final Thoughts

Choosing between an LLC and an S Corp in Georgia comes down to balancing tax savings against administrative complexity. For many entrepreneurs, the ability to reduce self-employment tax on distributions makes the S Corp election a smart move once their business reaches a certain profit level. However, the simplicity and flexibility of an LLC remain attractive for smaller operations.

If you’re uncertain which path suits your situation, consulting a Georgia-based CPA or business advisor can provide clarity and ensure you meet all IRS and state requirements. Making the right choice up front sets you up for greater savings and smoother operations down the road.