S-Corp vs. LLC in Ohio: Which Saves You More?
How to think about entity choice past the internet checklists — with real Ohio-specific numbers.
"Should I be an S-Corp or an LLC?" is one of the most-Googled small business questions in Ohio, and it's also one of the most consistently answered wrong online. The truth is these aren't even the same category — an LLC is a legal structure, an S-Corp is a tax election. You can be both, and for many Ohio owners you should be.
The core trade-off in one sentence
An LLC taxed as a sole proprietor pays self-employment tax (15.3%) on every dollar of profit. An LLC that elects S-Corp status only pays payroll taxes on your salary — the rest of the profit passes through as distributions with no SE tax. That's real money.
The Ohio-specific numbers
Ohio has no state-level S-Corp tax and no franchise tax on pass-through entities, which makes the S-Corp election cleaner here than in states like California or Tennessee. But you do have:
- Ohio Commercial Activity Tax (CAT) — kicks in at $150,000 of Ohio gross receipts and now runs at 0.26% above that threshold. Applies to LLCs and S-Corps alike.
- Cincinnati and RITA municipal net profit tax — around 1.8%–2.1% depending on the city. Runs on net profit, not gross receipts.
- Ohio Business Income Deduction — the first $250,000 of qualifying business income is deductible on your Ohio 1040, then taxed at a flat 3%. This is huge for pass-through owners.
When the S-Corp election starts paying off
Rough rule of thumb we use with clients: once your net business profit is comfortably above ~$60,000 after paying yourself a reasonable salary, the S-Corp election starts saving real money after accounting for payroll setup, bookkeeping and the extra return. Below that, the compliance cost usually eats the savings.
For a Cincinnati contractor netting $120,000, we typically see $6,000–$9,000 in annual SE tax savings from an S-Corp election — even after a fair W-2 salary and the extra tax prep.
The compliance cost people forget
- Payroll — you must run yourself a W-2 with a defensible "reasonable compensation" salary. Skip this and the IRS reclassifies distributions as wages, retroactively.
- Separate 1120-S return — due March 15, not April 15.
- Basis tracking — critical if you ever take distributions in excess of accumulated earnings.
- State registrations — Ohio, plus any city you work in.
How we approach it with clients
We run a two-year projection: what you'd pay as an LLC vs. as an S-Corp, including payroll, bookkeeping and the extra return. If the S-Corp saves more than it costs by a comfortable margin, we do it. If it's close, we wait. It takes about 45 minutes and it's part of every new business consultation.
