LLC or S corporation? How we help Ohio owners decide
“Should I be an LLC or an S corp?” is one of the first questions new business owners ask us, and the question itself contains a small misunderstanding worth clearing up.
Structure versus taxes
A limited liability company is a legal structure: you file Articles of Organization with the Ohio Secretary of State (the filing fee is $99), and the company becomes a separate legal person that protects your personal assets from the business’s debts.
An S corporation is a tax election. Both corporations and LLCs can file Form 2553 with the IRS and ask to be taxed as an S corporation. So the real choices are:
- an LLC taxed the default way (as a sole proprietorship or partnership);
- an LLC that elects to be taxed as an S corporation;
- a corporation, taxed as a C corporation or as an S corporation.
For most of our clients, an LLC is the right legal structure because it is flexible and simple to maintain. The interesting question is the tax election.
When the S election pays off
With default LLC taxation, all of your profit is subject to self-employment tax of about 15.3% on the first $176,100 (the 2025 Social Security wage base) and 2.9% above that. With an S election, you pay yourself a reasonable salary through payroll, and only that salary is subject to payroll taxes. The rest of the profit passes through to you without them.
A rough rule we use: once the business is reliably clearing $60,000 to $80,000 a year in profit after paying the owner, the S election is worth a serious look. Below that, the costs of running payroll, filing a separate business return and keeping more careful books tend to eat most of the savings.
Ohio wrinkles
- Ohio taxes business income from pass-through entities favourably: the first $250,000 of business income is deducted, and the rest is taxed at a flat 3%. That applies with or without the S election.
- The Commercial Activity Tax applies only once gross receipts pass the annual exclusion, so most new businesses will not owe it in their first years.
- Columbus and most Ohio cities levy their own income tax, which affects how the owner’s salary and distributions are treated. Your accountant will want to know which city you live in and where the business operates.
What we do
We do not prepare tax returns; we work alongside your accountant. In a formation consultation we run the numbers on your projected profit, recommend a structure, and draft an operating agreement that matches it. See our business formation page for what that includes.
This article is general information about Ohio law as of the date above. It is not legal advice for your situation. If you have a specific question, talk to us.