Choosing the right business structure is one of the most important financial decisions a small business owner can make. If you’re in Illinois, you’ve likely wondered whether an LLC or an S-Corp is the better choice for taxes in 2025. The answer depends on your income level, business goals, and how much time you want to spend on compliance. This guide breaks down the differences so you can make an informed choice.
What is an LLC?
A Limited Liability Company (LLC) is a flexible business structure that protects your personal assets while keeping taxes simple. In Illinois, LLCs are popular among small business owners because they are easy to set up and maintain. By default, profits and losses pass directly to the owner’s personal tax return. This means you pay self-employment taxes on your earnings, which cover Social Security and Medicare.
What is an S-Corp?
An S-Corporation is not a separate entity type but a tax election you can make with the IRS. Small business owners in Illinois often choose this option to reduce self-employment taxes. With an S-Corp, you pay yourself a reasonable salary and take additional profits as distributions, which are not subject to payroll taxes. To qualify, your business must meet IRS requirements such as having fewer than 100 shareholders and being a domestic corporation or LLC.
LLC vs. S-Corp: Tax Differences in 2025
When comparing LLC vs S Corp Illinois 2025, the biggest difference comes down to how profits are taxed.
- LLC Taxes: All profits are subject to self-employment tax. If you make $100,000, you pay payroll taxes on the entire amount.
- S-Corp Taxes: Only your salary is subject to payroll tax. The rest can be taken as distributions, which lowers your tax burden.
Example:
- LLC owner making $100,000 pays self-employment tax on the full amount.
- S-Corp owner pays themselves $60,000 salary and takes $40,000 as distributions. Only the $60,000 is taxed for Social Security and Medicare.
Illinois state tax rates apply the same to both, but the way federal taxes are handled can lead to savings. This is why many look into s corp vs llc tax benefits Illinois when profits grow.
| Feature | LLC | S-Corp |
| Taxation | Pass-through, full SE tax | Salary + distributions |
| Payroll Required | No | Yes |
| Flexibility | High | Moderate, with restrictions |
| Compliance Effort | Low | Higher |
Other Key Differences Beyond Taxes
Taxes are important, but they are not the only factor.
- Paperwork: LLCs are simple. S-Corps require payroll, IRS filings, and more record keeping.
- Ownership Rules: LLCs allow unlimited owners. S-Corps are limited to 100 shareholders and cannot include foreign owners.
- Image and Credibility: Some businesses feel that an S-Corp structure looks more professional to banks and investors.
Which is Better for Illinois Small Business Owners?
The right choice depends on your situation.
- LLC or S Corp for Small Business Illinois: If you are just starting and want low paperwork, an LLC is a good fit.
- If your business is generating consistent profits above $70,000 a year, an S-Corp may reduce taxes.
- If you plan to scale with investors or multiple partners, consider the ownership limits before choosing an S-Corp.
How to Choose in 2025
Ask yourself:
- How much profit do I expect to earn this year?
- Do I want to manage payroll and compliance?
- Will I bring in new partners or investors?
This will guide whether an LLC or S-Corp structure gives you the best business structure for taxes Illinois.
FAQs
Can an LLC become an S-Corp in Illinois?
Yes. You can form an LLC and then elect S-Corp taxation with the IRS.
Do Illinois S-Corps pay state taxes differently than LLCs?
No, both pay Illinois state income tax the same way. The difference is in federal self-employment taxes.
What are the costs of forming each?
An LLC has a straightforward setup fee in Illinois. An S-Corp requires ongoing payroll and compliance costs.
Final Thoughts
When comparing Illinois LLC vs S Corp tax advantages, there is no one-size-fits-all answer. LLCs are flexible and simple. S-Corps can save money on taxes once profits grow, but they come with more paperwork. The smartest move is to review your specific numbers and goals before deciding.
About Aced Accounting
At Aced Accounting, we help Chicago small business owners cut through the confusion of entity selection, tax planning, and bookkeeping. Whether you need help forming an LLC, electing S-Corp status, or simply want to know which option will save you more in 2025, our team of certified accountants is here to guide you.
We provide full-service bookkeeping, payroll, tax preparation, and business consulting tailored to your industry. From startups to restaurants to real estate, we’ve helped hundreds of local businesses stay compliant while maximizing tax savings.
Instead of guessing whether an LLC or S-Corp is right for you, let us walk you through the numbers. Schedule a free consultation today and see how Aced Accounting can help your business grow with confidence.
