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So what is the difference between an LLC and an S corp first off we are nuanced financial we're based out of Minnesota about 20 minutes south of Minneapolis we're an accounting bookkeeping tax and payroll firm that focuses on small businesses nonprofits and anyone who earned 1099 income and we're the Dave Ramsey endorsed local providers in the southern half of Minnesota all the scenarios we're going to show you are for illustration purposes only and shouldn't be construed as tax advice you need to sit down with a professional to get nuanced advice for your particular situation so what's the difference between an S Corp and an LLC well first off both of them are actually LLC's when we refer to an LLC here we're talking about an LLC taxed as a sole proprietor we'll just call it an LLC and then when we talk about an S Corp or actually referencing an LLC tax as an S corporation both LLC S & S corpse prbusiness owners with a couple of things legal protection so that there's a corporate veil between the company's assets and your personal assets they prsome operational advantages like partnerships and the ability to collaborate with others and they both serve as pass-through entities for taxes which means the profits and losses will flow through to the business owner so let's get a little more specific here for both an LLC in an S corp you're going to be figuring out your tax on your net profits now net profit is what's left over after you subtract all your deductions and right offs from your business's gross income now in an LLC your entire net profit will be subject to what's called self-employment tax remember when you were an employee at another company and your paycheck had that little FICA or Medicare deduction well when you have an employer and an employee relationship your employer would have paid half the social security limit and Medicare tax while the employee paid the other half now that you're self-employed you'll get to pay the tax of 15.3% on all net earnings up to the social security limit which changes each year but is at eighteen one hundred eighteen thousand five hundred for two fifteen after you hit the social security limit all your earnings above that you'll omed ik air taxes which is 2.8 percent then after you pay yourself employment tax you'll be subject to state and federal income tax this is simplifying it a bit but essentially you'll be paying an increasingly higher or marginal tax rate on your earnings the more you earn the higher your tax rate so with an LLC you'll pay fifteen point three percent self-employment tax on all of your net profits then you'll pay state and federal income taxes on your personal tax return let's look at a quick scenario focusing just on the self-employment taxes for a fictitious LLC taxes of sole proprietor here