S-Corp vs LLC for New Architecture Firms: Which Saves More on Taxes?
Compare S-Corp and LLC tax structures for new architecture firms. See which saves more on taxes, with real numbers and practical steps for 2026.
When you start an architecture firm, one of the first big decisions is choosing your business structure. The two most common options are the limited liability company (LLC) and the S corporation (S-Corp). Both offer personal liability protection, but they differ significantly in how they are taxed. For a new architecture firm, the question is not just about legal structure, but about which one saves more on taxes. The short answer: it depends on your profit level, but for most new architecture firms earning under $100,000 in net profit, an LLC is simpler and often cheaper. Once your profit exceeds $100,000, an S-Corp can save you thousands in self-employment taxes, but it comes with added administrative costs and payroll requirements. This guide breaks down the numbers, the trade-offs, and gives you a clear path forward.
How LLCs and S-Corps Are Taxed Differently
An LLC is a pass-through entity by default. If you are a single-member LLC, the IRS treats you as a sole proprietor. You report business income on Schedule C of your personal tax return, and you pay both income tax and self-employment tax (Social Security and Medicare) on the entire net profit. For 2026, the self-employment tax rate is 15.3% (12.4% for Social Security up to the wage base limit of $176,100, and 2.9% for Medicare with no limit).
An S-Corp is also a pass-through entity, but it allows you to split your income into two categories: a reasonable salary and distributions. You must pay yourself a salary that is subject to payroll taxes (Social Security and Medicare), but the remaining profits are distributed to you as dividends, which are not subject to self-employment tax. This is the key tax advantage of an S-Corp.
When an LLC Saves More: The Simple Math for New Firms
For a new architecture firm, especially in the first year or two, profits are often modest. You may be reinvesting in software, marketing, or hiring. If your net profit (after all business expenses) is under $100,000, an LLC is usually the better choice. Here is why:
- No payroll requirements: With an LLC, you do not have to run payroll or file payroll tax returns. This saves you time and money.
- Lower administrative costs: An S-Corp requires you to file Form 2553, pay for payroll processing, and file additional tax forms (Form 1120-S). These costs can run $1,500 to $3,000 per year for a small firm.
- Simpler tax filing: With an LLC, you just attach Schedule C to your personal return. With an S-Corp, you must file a separate corporate return (Form 1120-S) and issue K-1s to shareholders.
Let’s look at a concrete example. Suppose your new architecture firm has a net profit of $60,000 in 2026. As a single-member LLC, you will pay self-employment tax of 15.3% on that amount, which is $9,180. As an S-Corp, you would need to pay yourself a reasonable salary, which for an architect might be $50,000. You would pay payroll taxes on that salary (about $7,650), plus the cost of payroll processing (say $1,200 per year). The remaining $10,000 in distributions would not be subject to self-employment tax. Your total tax hit would be $7,650 + $1,200 = $8,850, plus the cost of preparing the S-Corp return (add $500 to $1,000). That is roughly $9,350 to $9,850, which is actually more than the LLC’s $9,180. So the LLC wins.
When an S-Corp Saves More: The $100,000 Threshold
As your firm grows, the S-Corp advantage becomes clear. Once your net profit exceeds $100,000, the self-employment tax savings can outweigh the additional costs. Here is a comparison table for different profit levels, assuming a reasonable salary of $80,000 for an architect (which is typical for a licensed architect in 2026) and payroll processing costs of $1,500 per year.
| Net Profit | LLC Self-Employment Tax | S-Corp Payroll Tax on Salary | S-Corp Distributions (not taxed) | S-Corp Total Tax + Admin Costs | S-Corp Savings vs LLC |
|---|---|---|---|---|---|
| $60,000 | $9,180 | $7,650 (on $50k salary) | $10,000 | $9,150 (incl. $1,500 admin) | -$30 (LLC is cheaper) |
| $100,000 | $15,300 | $12,240 (on $80k salary) | $20,000 | $13,740 (incl. $1,500 admin) | $1,560 savings |
| $150,000 | $22,950 | $12,240 (on $80k salary) | $70,000 | $13,740 (incl. $1,500 admin) | $9,210 savings |
| $200,000 | $30,600 | $12,240 (on $80k salary) | $120,000 | $13,740 (incl. $1,500 admin) | $16,860 savings |
Note: These figures are simplified and do not include income tax, which is the same for both structures. The savings come from avoiding the 15.3% self-employment tax on distributions.
The Hidden Costs of an S-Corp: Payroll and Compliance
Before you rush to elect S-Corp status, understand the ongoing obligations. As an S-Corp, you must:
- Pay yourself a reasonable salary: The IRS requires that your salary be comparable to what you would pay an employee for the same work. For an architect, that is typically $80,000 to $120,000 depending on your location and experience. If you pay yourself too little, the IRS can reclassify distributions as wages and impose penalties.
- Run payroll: You need to process payroll regularly (at least quarterly) and file payroll tax returns (Form 941). You can use a service like Gusto or ADP, which costs $40 to $100 per month.
- File a corporate tax return: Form 1120-S is due by March 15 (or the 15th day of the third month after your fiscal year ends). You will also need to issue Schedule K-1 to each shareholder.
- Maintain corporate formalities: You must hold annual meetings, keep minutes, and document major decisions. This is more paperwork than an LLC.
These costs can eat into your savings. For a new firm, the administrative burden can be a distraction from your core work: designing buildings.
Practical Steps for New Architecture Firms
If you are starting an architecture firm today, here is what you should do this week:
- Estimate your net profit for the first year. Use a conservative projection. If it is under $100,000, start as an LLC. You can always elect S-Corp status later (the IRS allows you to file Form 2553 within 75 days of the start of your tax year, or by March 15 of the year you want the election to take effect).
- If you are already operating as an LLC and your profit is above $100,000, consider electing S-Corp status. Talk to a CPA who works with architecture firms. They can help you determine a reasonable salary and run the numbers.
- Set up a separate business bank account and credit card. This is essential for both structures to keep personal and business finances separate.
- Use accounting software like QuickBooks or Xero. Track all income and expenses from day one. This will make tax time easier and give you accurate profit numbers.
- Consult a tax professional. The decision between LLC and S-Corp is not a DIY call. A CPA can model your specific situation and help you avoid costly mistakes.
FAQ
Can I switch from an LLC to an S-Corp later? Yes. You can file Form 2553 with the IRS to elect S-Corp status. The election must be filed no later than March 15 of the tax year you want it to take effect, or within 75 days of the start of the tax year. You will need to have a valid reason for the late election if you miss the deadline.
What is a reasonable salary for an architect in an S-Corp? For 2026, a reasonable salary for a licensed architect with a few years of experience is typically between $80,000 and $120,000, depending on your location and the complexity of your work. The IRS looks at what other firms pay for similar services. You can use salary surveys from the AIA or the Bureau of Labor Statistics as a benchmark.
Do I have to pay myself a salary if I am an LLC? No. As an LLC, you are not an employee of your own business. You simply take draws from the company’s profits. You do not pay payroll taxes, but you do pay self-employment tax on all net income.
What if I have partners? Both LLCs and S-Corps can have multiple owners. In an LLC, you can choose to be taxed as a partnership, and each member pays self-employment tax on their share. In an S-Corp, each shareholder must receive a reasonable salary, and distributions are not subject to self-employment tax. The same profit thresholds apply, but you will need to allocate salary and distributions among owners.
The Bottom Line
For a new architecture firm, the tax savings from an S-Corp only become significant once your net profit exceeds $100,000. Below that level, the administrative costs and payroll requirements of an S-Corp often wipe out any tax benefit. Start as an LLC, keep your overhead low, and focus on building your client base. Once your profit climbs above $100,000, revisit the decision with your CPA. At that point, an S-Corp can save you $1,500 to $16,000 or more per year in self-employment taxes, which is worth the extra paperwork. The key is to make the switch at the right time, not too early, and not too late.