The Small Business Tax Help Blog

Question: S corporation vs LLC company .. HELP?

what does this mean?? ‘A single-member LLC that doesn’t operate an active trade or business doesn’t have to pay self-employment tax and so would not save self-employment taxes by electing S corporation status.’
What do you mean by if income is passive? how does that make a difference?
we have a business. would it be better to create an S corporation so, we can save on employment tax? I was just wondering what does it mean by having an active trade or business..

Answer: All income that is from an active trade or business is subject to self-employment tax if it is earned in an LLC. If it is earned in an S corp, it is not subject to social security unless paid out as wages.
Income that is passive (interest, dividends, etc.) earned in an LLC is not subject to self-employment tax. Same for an S Corp. What you are reading says there is no advantage of S Corp taxation over LLC taxation if all the income is passive.

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