Does forming an LLC lower my taxes?

No. An LLC is a legal structure, not a tax structure — by default a single-member LLC is taxed exactly like a sole proprietorship. What it adds is liability protection, not tax savings.

What profit level makes an S-corp election worth it?

Most advisors start looking seriously once net profit consistently lands in the $60,000-$80,000+ range, with savings becoming clearly worthwhile north of $100,000.

What happens if I miss the S-corp election deadline?

You generally have to wait until the following tax year to make the election, unless you qualify for IRS late-election relief under Rev. Proc. 2013-30 for reasonable cause.

Tax Strategy

When Does Your Side Hustle Actually Need to Become an LLC — or an S-Corp?

James Sieng, EAJuly 13, 20263 min read

If you've got a 1099 side hustle bringing in real money, you've probably heard “you should incorporate” from a friend, a Facebook group, or a YouTube video with a thumbnail of someone pointing at a Lamborghini. Most of that advice is either too early or too vague to act on. Here's the actual framework.

Step one: does an LLC even matter yet?

An LLC is a legal structure, not a tax structure. On its own, it doesn't save you a dollar in taxes — by default, the IRS still taxes a single-member LLC exactly like a sole proprietorship. What it does give you is liability protection: your personal assets are separated from your business's. If you're doing consulting, coaching, freelance work, or anything where a client could plausibly sue you, that protection matters well before the tax question does. If you're clearing a few thousand dollars a year reselling or doing occasional freelance work, the LLC can usually wait.

Step two: the number that actually triggers S-corp

The tax conversation starts with self-employment tax — the 15.3% you're paying on every dollar of net profit, on top of income tax. An S-corp election lets you split your income into a “reasonable salary” (subject to payroll tax) and distributions (not subject to self-employment tax). Below a certain profit level, the payroll setup, separate tax return, and bookkeeping requirements cost more than they save. Above it, the savings become real money.

As a rule of thumb, most advisors start looking seriously at S-corp election once net profit is consistently landing in the $60,000–$80,000+ range, and it gets clearly worthwhile north of $100k. Sieyant's own target client threshold is $200k+ in profit — the point where the savings stop being marginal and start being a five-figure decision every year.

Step three: the deadline nobody tells you about

This is the part that costs people real money. If you already have an LLC or corporation and want S-corp tax treatment for the current year, the IRS generally requires you to file Form 2553 within 2 months and 15 days of the start of your tax year — that's mid-March for a calendar-year business. Miss it, and you're waiting until next January to make the switch, watching another year of self-employment tax go out the door. (There's late-election relief in some cases, but it's not guaranteed — don't plan around it.)

If you're reading this in the summer wondering whether you should have made the move already: you likely can't fix this year, but you can lock in next year now instead of scrambling in February.

Step four: what it actually costs to maintain

An S-corp isn't a form you file once and forget. It requires:

Running actual payroll for yourself, with withholding and payroll tax filings
A separate business tax return (Form 1120-S) in addition to your personal return
Clean bookkeeping — the IRS expects your “reasonable salary” to be defensible, not arbitrary

None of this is a reason to avoid it. It's a reason to have someone managing it who does tax and books, so the structure doesn't quietly fall out of compliance a year in.

The bottom line

Under ~$40–$50k in side income: focus on running the business, not the entity.
Liability exposure but modest profit: LLC now, revisit S-corp later.
Consistently clearing $60–$80k+ in profit: it's time for a real conversation about the S-corp election — and about the calendar, since the window closes faster than most people expect.

If you're not sure which bucket you're in, that's exactly the conversation worth having before your numbers force the decision for you.

Not sure where your side hustle stands? Schedule a consultation — we'll look at your actual numbers, not a rule of thumb.

The information provided on this site is for general informational purposes only and does not constitute tax, legal, or financial advice. Every situation is different — consult a qualified professional regarding your specific circumstances before making any financial or tax decisions.