As a small business owner in Texas, picking the right setup for your business is a big deal.
It doesn’t just affect what forms you fill out — it affects your taxes, your day-to-day operations, and how much flexibility you have as you grow.
In 2025, most small businesses are looking at two main options: LLC vs S Corp. While they share a few similarities, they have important differences that can have a real impact on your bottom line.
Here’s what you need to know about forming LLCs vs S Corps in Texas to make the best choice for your business this year.
Skip ahead:
First, you need a business structure. Most small business owners choose an LLC, which stands for Limited Liability Company. An LLC protects your personal stuff — like your house and savings — if something goes wrong in your business.
It’s easy to manage, and the money your business makes just gets added to your regular personal taxes. You don’t file a separate business tax return with the IRS unless you have multiple owners.
An S Corp is not a new type of business. It’s just a special way of telling the IRS you want to be taxed differently. You still form an LLC (or a corporation) first.
Then, you choose S Corp status to try to save money on taxes, but it comes with extra rules you have to follow — like paying yourself through a real paycheck.
Once you get these basics down, the rest of the decision will make a lot more sense.
In Texas, setting up either structure starts the same way: you file a Certificate of Formation with the Secretary of State. The filing fee is $300 whether you form an LLC or a corporation.
Texas doesn’t make you pay state income tax on the money you earn personally, which is a big help for small businesses. But there’s something called the Franchise Tax. If your business makes more than about $2.5 million in a year, you’ll have to file a Franchise Tax Report. Most small businesses don’t owe anything, but you still have to send in the paperwork every year.
As long as you stay on top of the filings, both structures are manageable.
When you have a regular LLC, all the money your business makes is treated like your personal income. You pay regular income taxes plus self-employment taxes (around 15.3%) on the entire amount. It doesn’t matter if you leave the money in the business account or pay yourself — you get taxed either way.
With an S Corp, it works differently. The government says you have to split your business income into two parts.
First, you pay yourself a salary. You treat yourself like an employee. You pay payroll taxes (Social Security and Medicare) on that salary.
Then, whatever money is left over after your salary is called a distribution. You do not pay self-employment taxes on distributions. You only pay regular income tax on that part.
Here’s why that matters: self-employment taxes add up fast. If you can move some of your profit into the “distribution” bucket instead of the “salary” bucket, you’ll owe a lot less in taxes overall.
If your business is earning around $80,000 or more before paying yourself, it’s usually worth looking into an S Corp election.
If you’re wondering how you actually make the move to S Corp status, here’s what it looks like in plain English.
First, you need to form an LLC or a corporation. You can’t just “be” an S Corp without a legal business. In Texas, most small business owners form an LLC first because it’s simple and flexible.
After your business is officially formed, you file IRS Form 2553 to tell the government you want to be taxed as an S Corp. It’s just a tax election — your business itself stays the same.
You usually need to file Form 2553 within 75 days of forming your business, or within the first 75 days of the new tax year (by March 15 if you want it for this whole year). If you miss the deadline, you might have to wait until next year to get S Corp status.
Once the IRS accepts your election, you’ll need to start running payroll for yourself. That means paying yourself a salary through an actual payroll system — no more just transferring money from your business account when you feel like it.
If you want to see exactly how much you could save, we made a free S Corporation Tax Calculator that makes it easy to run the numbers for your situation.
Let’s say your business has $150,000 in net income this year.
If you’re taxed as a regular LLC, you’ll pay self-employment tax (15.3%) on the full $150,000 — which adds up to about $22,950, plus your regular income taxes.
If you elect S Corp status, you might pay yourself a reasonable salary of $70,000. You’ll pay payroll taxes on that $70,000 (about $10,700 total). The remaining $80,000 would not be subject to self-employment tax — only regular income tax.
Bottom line: you would save around $12,000 in taxes – just by making the S Corp election and setting up payroll properly.
If you want to see how the numbers would work for you, it’s worth trying the S Corporation Tax Calculator. It’s quick and easy.
If you have a regular LLC, it’s pretty easy to manage. You don’t have to hold official meetings, take minutes, issue stock, or do a lot of paperwork. You basically just run your business, keep good records, and file your taxes once a year.
If you set up an S Corp, the IRS expects you to act more like a “real company” on paper, even if it’s just you running everything. You’ll need to create company rules (bylaws), have a yearly meeting, keep notes about any big decisions, and pay yourself through an official payroll system.
It’s not impossible — a lot of small business owners manage it fine — but it’s definitely more work than running a basic LLC.
If you start an LLC, pretty much anyone can be an owner. You can have one owner or many. The owners can be individuals, other companies, or even trusts. They don’t have to be U.S. citizens either. It’s flexible and easy to grow later if you want to.
S Corps are more restricted. You can’t have more than 100 owners, and they generally have to be U.S. citizens or permanent residents. You’re also limited to having only one class of stock.
If you’re planning to stay small, you probably don’t have to worry about these rules. But if you ever want to bring in outside investors, the S Corp limits might make a difference.
One common myth is that S Corps offer better legal protection than LLCs. They don’t. Liability protection comes from forming an entity like an LLC or corporation, not from how your business is taxed.
Another myth is that S Corps always save you money. They can – but only if your profits are high enough to make the extra payroll and compliance costs worth it.
And no, you don’t have to pick between LLC and S Corp right away. You can start as a simple LLC and later elect S Corp status once your profits grow.
If you’re just starting out or keeping things simple, forming an LLC is usually the best move. It’s flexible, easy to run, and protects your personal assets.
If your business is starting to earn real profits — especially $80,000 or more before paying yourself — it’s smart to think about electing S Corp status. Saving thousands of dollars a year could make a big difference for your bottom line.
The smart move is to do the math and see if the savings are big enough to make it worth the extra work. Try the free S Corporation Tax Calculator or talk to a CPA (psst.. That’s us!) who can walk you through the options.
Choosing between an LLC and an S Corp isn’t just about taxes. It’s about building your business the right way from the start — and setting yourself up to grow without unnecessary headaches.
An LLC keeps things simple when you’re getting started. An S Corp can help you keep more of your money once the business takes off.
If you’re not sure what fits your goals for 2025, we’re here to help.
At Adam Traywick, CPA, we work with small business owners across Texas to make smart, confident decisions about entity setup, taxes, and long-term planning.
Until next time!
This business is growing with Markology.io
