Business Entity Selector & Analyzer
Which business structure is right for you in the US (Sole Proprietorship, Partnership, S Corp, LLC)? Use this tool to compare key tax benefits and legal liabilities to make an informed decision.
Key Benefit Analysis: S Corp Payroll Tax (FICA) Savings
The biggest tax benefit of an S Corp is payroll tax savings. Unlike a sole proprietor, an S Corp owner pays FICA tax only on their 'reasonable salary,' saving on the remaining profits taken as distributions. Adjust the sliders below to see your estimated savings.
Comprehensive Entity Comparison
Payroll tax savings are important, but not the only factor. Use the table below to compare other aspects like legal liability, loss deductions, and future exit strategies.
| Feature | Sole Proprietorship | Partnership / LLC (as P) | S Corp / LLC (as S) | LLC (Ultimate Flexibility) |
|---|---|---|---|---|
| Limited Liability Protection | ✖ | ✖ (GP) / ✔ (LP) | ✔ | ✔ |
| Payroll Tax (FICA) Savings | ✖ | ✖ | ✔ | (If elected as S Corp) |
| Loss Deduction (incl. Debt) | N/A | ✔ | ✖ | (If taxed as Partnership) |
| Flexible Profit/Loss Allocation | N/A | ✔ | ✖ | (If taxed as Partnership) |
| Investor Flexibility (Corps/Foreigners) | N/A | ✔ | ✖ | (If taxed as Partnership) |
| Exit Strategy (Asset Basis Step-up) | N/A | ✔ (§754) | ✖ (on stock sale) | (§754, if taxed as Partnership) |
| Administrative Burden | Low | Medium | High | Medium |
In-Depth Analysis of Each Entity Type
Learn more about the core pros, cons, and ideal use cases for each business structure.
Sole Proprietorship
+The Gist: The simplest form. Easy and inexpensive to set up.
- Pros: Almost no administrative burden, owner has full control of all profits.
- Cons: Unlimited liability. Personal assets are fully exposed to business debts. All net profits are subject to self-employment tax.
- Ideal For: Low-risk one-person businesses, freelancers, and the initial phase of a new business idea.
Partnership
+The Gist: Maximum flexibility. Suitable for businesses with multiple owners.
- Pros: Can design flexible profit/loss sharing arrangements. Can increase loss deduction limits by including entity-level debt in partner's basis. Favorable exit strategies via §754 election.
- Cons: General partners still have unlimited liability. Tax code (Subchapter K) is notoriously complex.
- Ideal For: Real estate ventures, startups with multiple founders, professional groups.
S Corporation
+The Gist: The king of payroll tax savings. Great for profitable businesses.
- Pros: Limited liability protection. Exemption from FICA tax on profits distributed beyond a reasonable salary.
- Cons: Strict shareholder restrictions (<=100, US citizens/residents only). No flexibility in profit/loss allocation (must be pro-rata by ownership). Entity-level debt does not increase shareholder basis for loss deductions (a major drawback).
- Ideal For: Highly profitable service businesses with one or a few shareholders (consulting, legal, medical, etc.).
Limited Liability Company (LLC)
+The Gist: The ultimate hybrid. Combines legal protection with tax flexibility.
- Pros: Provides limited liability protection. The "Check-the-box" rule allows you to choose to be taxed as a sole proprietorship, partnership, or S Corp. Can flexibly change tax strategy as the business grows.
- Cons: Some states impose additional franchise taxes or fees. Less legal precedent compared to corporations.
- Ideal For: Almost any modern business. Especially optimal for entrepreneurs with uncertain future growth plans or those who want to maximize flexibility.