⊢ Compliance Ledger

Should I form an LLC? Should I elect S-corp?

Three layers: liability shield (LLC vs sole prop — pure liability decision, no tax change), tax-treatment election (single-member LLCs default to disregarded; Form 2553 elects S-corp), and compliance overhead (each entity type has its own yearly + quarterly forms). Tool computes the breakeven where S-corp election starts net-saving money.

Profit (revenue − expenses)$100,000Calculated from verified inputs using a documented formula. As reliable as the inputs and the math. Example: breakeven = added_costs / 0.0765 — both inputs cite primary sources.What does this mean? →
S-corp election breakeven in Illinois~$18,000Calculated from verified inputs using a documented formula. As reliable as the inputs and the math. Example: breakeven = added_costs / 0.0765 — both inputs cite primary sources.What does this mean? →

Added S-corp cost in IL: $0 (min tax) + $600 (payroll) + $800 (tax-prep delta) = $1400/yr. SE tax savings ≈ profit × 0.5 × 15.3% (assuming reasonable comp ≈ half profit). Breakeven: profit ≈ $18000.

✓ Profit is ABOVE breakeven — S-corp election may save money. Compare scenarios below.

Three paths compared

Sole proprietor
Net to owner$69,047Calculated from verified inputs using a documented formula. As reliable as the inputs and the math. Example: breakeven = added_costs / 0.0765 — both inputs cite primary sources.What does this mean? →
Net profit
$100,000
SE / FICA tax
$15,300
Federal income (~)
$11,082
State income (~)
$4,571
  • No liability shield — your personal assets are exposed.
  • Simplest tax structure: Schedule C + Schedule SE on your 1040.
  • No state entity-level fee; no annual report.
Single-member LLC (default — disregarded entity)
Net to owner$68,972Calculated from verified inputs using a documented formula. As reliable as the inputs and the math. Example: breakeven = added_costs / 0.0765 — both inputs cite primary sources.What does this mean? →
Net profit
$100,000
SE / FICA tax
$15,300
Federal income (~)
$11,082
State income (~)
$4,571
State LLC fee
$75
  • Limited liability shield — protects personal assets if business is sued.
  • IRS taxes single-member LLCs as a "disregarded entity" — same Schedule C + Schedule SE as a sole prop.
  • IL LLC annual cost: $75.
  • IL has no LLC franchise tax, just the $75 annual report.
LLC + S-corp election (Form 2553)net-best
Net to owner$74,384Calculated from verified inputs using a documented formula. As reliable as the inputs and the math. Example: breakeven = added_costs / 0.0765 — both inputs cite primary sources.What does this mean? →
Net profit
$100,000
Reasonable comp (W-2)
$50,000
K-1 distribution
$50,000
SE / FICA tax
$7,650
Federal income (~)
$11,541
State income (~)
$4,950
State LLC fee
$75
Payroll service
$600
Tax-prep delta
$800
  • Reasonable comp: $50,000 (W-2, FICA applies); K-1 distribution: $50,000 (NO SE tax).
  • SE tax savings vs sole prop: ~$7650 per year.
  • Cost to maintain: ~$1,400/yr (state min + payroll + tax-prep delta).
  • Net S-corp savings: ~$6250/yr.
  • Reasonable comp must reflect what an arm's-length employee would earn for the role; the IRS recharacterizes too-low comp as constructive distributions.
  • IL S-corps owe Personal Property Replacement Tax (PPRT) at 1.5% of net income (no minimum).

Reports you'd file — yearly + quarterly

Sole prop

Quarterly
  • Form 1040-ESQ1: Apr 15 · Q2: Jun 15 · Q3: Sep 15 · Q4: Jan 15 (next year)Federal estimated income tax (covers SE tax + income tax, since employer doesn't withhold for you).primary source →
Annually
  • Form 1040Apr 15Personal income tax return.primary source →
  • Schedule CApr 15 (with 1040)Profit or loss from business — sole prop and disregarded-entity LLC report business income/expenses here.primary source →
  • Schedule SEApr 15 (with 1040)Self-employment tax — 15.3% on net business income.primary source →
  • Form 1099-NECJan 31Required for any contractor paid $600+ during the calendar year.primary source →
  • State personal income tax returnApr 15 (most states)Filed with state DOR.

LLC (disregarded)

Quarterly
  • Form 1040-ESQ1: Apr 15 · Q2: Jun 15 · Q3: Sep 15 · Q4: Jan 15 (next year)Federal estimated income tax (covers SE tax + income tax, since employer doesn't withhold for you).primary source →
Annually
  • Form 1040Apr 15Personal income tax return.primary source →
  • Schedule CApr 15 (with 1040)Profit or loss from business — sole prop and disregarded-entity LLC report business income/expenses here.primary source →
  • Schedule SEApr 15 (with 1040)Self-employment tax — 15.3% on net business income.primary source →
  • Form 1099-NECJan 31Required for any contractor paid $600+ during the calendar year.primary source →
  • State LLC annual reportVaries by state — see authority URLAnnual report filed with the Secretary of State to keep the LLC in good standing.
  • State personal income tax returnApr 15 (most states)Filed with state DOR.

LLC + S-corp

Quarterly
  • Form 1040-ESQ1: Apr 15 · Q2: Jun 15 · Q3: Sep 15 · Q4: Jan 15 (next year)Federal estimated income tax (covers SE tax + income tax, since employer doesn't withhold for you).primary source →
  • Form 941Q1: Apr 30 · Q2: Jul 31 · Q3: Oct 31 · Q4: Jan 31Quarterly federal payroll tax return — reports FICA + federal withholding from W-2 employee paychecks (incl. owner-employee in S-corp scenario).primary source →
  • State quarterly UI + withholding returnQ1: Apr 30 · Q2: Jul 31 · Q3: Oct 31 · Q4: Jan 31 (most states)For S-corp owner-employee: quarterly state unemployment insurance + state income tax withholding return.
Annually
  • Form 1040Apr 15Personal income tax return.primary source →
  • Form 1120-SMar 15S-corp annual return — reports the entity's income and issues K-1s to shareholders.primary source →
  • Form W-2 + W-3Jan 31Wage statement for owner-employee (and any other W-2 employees).primary source →
  • Form 940Jan 31Federal Unemployment Tax (FUTA) annual return — covers owner-employee in S-corp + any other employees.primary source →
  • Form 1099-NECJan 31Required for any contractor paid $600+ during the calendar year.primary source →
  • State LLC annual reportVaries by state — see authority URLAnnual report filed with the Secretary of State to keep the LLC in good standing.
  • State personal income tax returnApr 15 (most states)Filed with state DOR.

State fees — Illinois

IL has no LLC franchise tax, just the $75 annual report.

State authority for Illinois: Secretary of State (LLC formation/annual report) → · Department of Revenue (business taxes) →

Estimates only. Federal income tax uses a 12% bracket approximationFrom a third-party source (Tax Foundation, etc.) — useful for context but not authoritative for filing. Verify against the primary source before relying on a number for a tax return.What does this mean? →; state PIT uses the effective approximation from the resolver. Reasonable-compensation determination, multistate apportionment, and elections beyond Form 2553 (Form 8832 to elect C-corp; etc.) are out of scopeWe deliberately do not cover this case. The linked source is where to find authoritative guidance — typically a CPA, tax attorney, or the relevant IRS publication.View primary source →What does this mean? →. For filing-grade output use a CPA or tax attorney.

The three-layer decision

Layer 1 — liability shield. Sole prop = personal assets exposed if you're sued. LLC = limited liability shield. Costs $40-500 to form + state annual fee. Tax impact: zero.

Layer 2 — tax-treatment election. Single-member LLC defaults to "disregarded entity" — IRS taxes it identically to a sole prop (Schedule C + Schedule SE). The S-corp election (Form 2553) splits your income into reasonable compensation (W-2, FICA applies) and K-1 distributions (no SE tax). Saves ~15.3% × (profit − reasonable_comp) / yr in SE tax.

Layer 3 — overhead cost. S-corp adds payroll service ($300-1,500/yr), tax-prep delta ($500-1,500/yr), state minimum franchise tax (CA $800/yr always; TN F&E 6.5% etc.). Breakeven typically $40k-80k profit — below that, S-corp election costs more than it saves.

What the tool can't do

Federal income tax uses a 12% bracket approximation; the federal tax math is approximate. Reasonable-compensation determination is the IRS's most-litigated point — you need a CPA to defend yours. C-corp election (Form 8832) and multi-member LLC partnership math are out of scope. State-by-state LLC dissolution rules, foreign-LLC qualification (operating in multiple states), and city-level entity taxes (NYC UBT 4% on unincorporated business income) are also out of scope.

For filing-grade output use a CPA or a tax attorney — this is decision support, not a substitute.