Forming an LLC doesn't settle how you take money out of it. The tax treatment does, and it decides how much of your income gets hit with the 15.3% self-employment tax: draws, payroll, or an S-corp election with a salary and distributions. We work out which you have, set a salary that holds up, and file the returns, whether you run the business from Austin or Lisbon.
“LLC” is a state-law label. The IRS doesn't have a tax category for it, so it treats yours as one of three things, and that treatment is what drives your bill.
By default it’s a “disregarded entity”: the IRS looks straight through it and the profit goes on your Schedule C. There’s no salary and no payroll. You take draws, and your net profit carries 15.3% self-employment tax (on 92.35% of it, with the Social Security part capped at $176,100 for 2025) on top of income tax.
Taxed as a partnership, on Form 1065. The owners aren’t employees. They take distributions and guaranteed payments, and each gets a Schedule K-1. If you’re an active member, expect self-employment tax on your share of the profit.
File Form 2553 and the same LLC is taxed as an S corporation. Now you have to pay yourself a reasonable W-2 salary, and the profit left after that comes out as distributions that don’t carry the 15.3%. This is the one that can actually lower the bill.
Once you've elected S-corp status, it's tempting to pay yourself a token salary and take the rest as distributions. The IRS has seen that plenty of times. It can reclassify those distributions as wages and bill the back payroll tax with penalties and interest, and the courts have backed it. Your salary has to be reasonable for the work you actually do, so we benchmark it and keep the paperwork that shows why.
In a default single- or multi-member LLC, active owners pay the full 15.3% self-employment tax on their share of profit. There's no payroll in between to change that.
Under an S-corp, the wage you pay yourself carries Social Security and Medicare tax like any employee's, half paid by the company and half withheld from you.
Profit paid out above a reasonable salary doesn't carry self-employment tax. That gap is the whole reason the election can save money.
One owner or several? Working in the business or just invested in it? We start with your LLC's default treatment, disregarded entity or partnership, and the self-employment tax that comes with it, before we talk about any election.
Payroll costs and the extra return on one side, self-employment tax saved on distributions on the other. The election only pays once profit is high enough to cover a proper salary with room to spare, so we show you which side of that line you're on. Planning time is $200 / hr, credited if you file with us.
If the election makes sense, we set a wage that fits your role and industry and write down how we got there. Set it too low and the IRS can treat your distributions as wages and charge the payroll tax, plus penalties and interest.
Schedule C, a 1065 with K-1s, or an 1120-S with a W-2 and K-1: whichever it is, the desk that set up the structure prepares every form, your personal 1040 included. If you're electing, Form 2553 has to go in within 2 months and 15 days of the start of the year you want it to apply to, so we don't leave it until spring.
Each treatment comes with its own returns, and living abroad doesn't get you out of any of them. The foreign earned income exclusion won't help here either: it can cut your income tax, but it doesn't reduce self-employment tax at all.
Single-member and disregarded. Your net profit goes on your personal return, and onto Schedule SE for the self-employment tax.
Multi-member partnership. The LLC files an information return, and each owner reports their K-1 share on their own 1040.
S-corp election. The LLC files an 1120-S and runs payroll, issuing you a W-2 for your salary. Whatever’s left is reported to you on a K-1.