Choosing the Right Business Structure: LLC, S-Corp, or C-Corp?

Choosing the right business entity is one of the most important decisions a small business owner can make. Your choice affects taxes, liability protection, recordkeeping, payroll requirements, and long-term financial planning. At Linda’s Tax Service, our tax professionals, accountants, and bookkeeping experts spent more than 25 years helping small businesses in Vancouver, WA, and throughout the country choose the optimal structure for their goals and tax situation.

While many new business owners in Washington default to forming an LLC, that isn’t always the most tax-efficient choice, especially for businesses generating self-employment income. Understanding the differences between an LLC, S-Corporation, and C-Corporation ensures you avoid costly mistakes and unexpected tax bills down the road.

LLC (Limited Liability Company)

Understanding The Difference Llc Vs S Corp C Corp Whats Best For Your Small Business WA

Pros

  • Flexible management structure
  • Strong liability protection
  • Simple to set up and maintain
  • Ideal for real estate investment and property management

Cons

  • No inherent tax savings — an LLC does not change how you are taxed
  • Most LLC owners are taxed as sole proprietors or partnerships, which means self-employment tax on all profits
  • Not always the best choice for service-based or self-employment-heavy businesses

Who an LLC Works Best For

In the Vancouver and Southwest Washington area, most small business owners choose an LLC for the liability protection. While this can be a good starting point, the biggest mistake we see is not planning for the tax implications. Many people assume an LLC automatically lowers taxes—but it doesn’t.

LLCs are generally best for holding real estate, not for businesses expected to generate higher levels of self-employment income.

S-Corporation (S-Corp)

Pros

  • Often, the best tax-saving option for small businesses
  • Ability to pay yourself a reasonable wage while taking additional profits as distributions
  • Distributions are not subject to self-employment tax, which can mean significant savings
  • Provides liability protection similar to an LLC

Cons

  • Requires payroll setup and additional recordkeeping
  • Must meet IRS qualification rules
  • Needs more ongoing compliance than an LLC

Who an S-Corp Works Best For

At Linda’s Tax Service, we generally recommend choosing S-Corporation status when a business expects to make more than $30,000 in annual profit, especially if the business generates self-employment income. Industries vary, but for many service-based businesses, trades, and independent contractors, an S-Corp offers the best overall tax savings.

This structure helps reduce unexpected tax burdens, which is one of the most common issues we see with new clients.

C-Corporation (C-Corp)

Pros

  • Attractive for businesses planning large growth or seeking investors
  • Can offer stock options and multiple share classes
  • Flat corporate tax rate

Cons

  • Potential double taxation (corporate income + shareholder dividends)
  • More complex reporting and compliance
  • Not typically necessary for most local small businesses

Who a C-Corp Works Best For

C-Corps are usually preferred by growing startups, companies needing investment capital, and businesses planning national expansion. While they offer excellent liability protection, they are not typically the first choice for small businesses in Washington unless there is a specific strategic reason.

How Washington State Taxes Affect Your Decision

Washington does not have a state income tax, but that does not mean businesses avoid taxes. All businesses—including LLCs, S-Corps, and C-Corps—are subject to:

  • Washington B&O (Business & Occupation) Tax
  • Sales tax collection when applicable

Your entity type does not change these obligations. However, choosing the right structure can significantly reduce federal tax liability, which is where most savings occur.

Why Work With Linda’s Tax Service?

We begin with a thorough interview to evaluate your business goals, expected revenue, tax situation, and liability needs. Our goal is to help you understand:

  • How much tax will you pay
  • How to reduce your tax burden
  • How to structure your business for long-term success

We also strongly recommend setting aside all state-collected taxes (sales tax, payroll withholding, etc.) in a separate account so you’re prepared when payments are due—this prevents the surprise of higher-than-expected tax bills, which we see far too often.

With over 25 years of expertise, we help clients set up entities in all 50 states and provide ongoing support, including:

  • Bookkeeping
  • Payroll services
  • Washington sales tax reporting
  • Quarterly and annual business tax filings
  • Business consulting
  • Guidance for business exit, retirement, sale, or closure

Contact Us

Ready to choose the best business entity for your small business? Contact us today for expert tax services. We’re here to help.

FAQs on LLC vs. S-Corp vs. C-Corp

Is an LLC the best choice for a new small business?
Not always. While LLCs provide great liability protection, they don’t offer tax savings unless paired with an S-Corp election.
When should I consider an S-Corporation?
If your business is earning more than $30,000 in profit, an S-Corp is usually the most tax-efficient option.
Does Washington’s lack of income tax change my entity choice?
No, because all businesses still pay B&O tax and collect sales tax. The biggest tax savings come from the federal tax structure.
Do you help with entity setup?
Yes, we handle full business entity formation in any state, along with bookkeeping, payroll, and tax filings.