We, as people, will sell ourselves out just to save a dollar, not realizing we are running in circles. What do I mean? So many people proudly say, "I have an S-Corp!" thinking they are making a power move—when in reality, they don’t even own a business entity. An S-Corp is not a business, it’s a tax election. But here’s the kicker: CPAs often lead business owners down this path by saying, "Hey, business owner, you know you can save on taxes if you file as an S-Corp!" Ha ha ha… what they aren’t telling you is how Social Security and Medicare taxes really work.
Yes, when you operate an LLC, you must pay self-employment tax (15.3%), which covers Social Security and Medicare. But when you file taxes as an S-Corp, you don’t pay self-employment tax—and right there, you as a business owner think you’re winning. That is the trick. You are NOT winning—you are selling yourself out to save a dollar while still taking personal responsibility for your business’s income, losses, and deductions.
Let’s break it down: When you work for a company like Walmart and earn $40,000, you don’t pay 15.3% in payroll taxes. Instead:
You pay 7.65% (Social Security & Medicare tax deducted from your paycheck).
Walmart pays the other 7.65% (as your employer, since it is a separate entity).
If Walmart is sued, you, as an employee, are not liable.
Now, let’s compare that to an S-Corp election:
You think you’re saving because you avoid self-employment tax.
But because you now have to be an employee of your own business, you must pay yourself a salary.
That means you pay 7.65%Â in payroll taxes on your paycheck.
Guess who pays the other 7.65%? Your S-Corp. But wait… YOU OWN THE S-CORP.
So, did you really save? NO. You just split the 15.3% payroll tax between yourself and your business—which you still own and are personally responsible for.
Now, let’s talk about liability. The Secretary of State still lists your business as an LLC because an S-Corp is just a tax election—not a separate entity. So what happens when:
A bank asks for your Articles of Incorporation? They don’t exist because you filed as an LLC, not a corporation.
You apply for a loan? Your business income is still reported on Schedule 1 of your personal 1040, just like a sole proprietorship.
The bank asks for an EIN document? That EIN has your name on it, tying you personally to the business.
You apply for credit? You have to co-sign or personally guarantee everything because, legally, your business is still YOU.
The C-Corp is the Only Structure That Truly Separates You
When I tell people about the C-Corp, almost 100% of the time, the response is: "But wait, don’t I have to pay taxes twice with a C-Corp?" And there it is again—your mind playing tricks on you.
People have been conditioned to fear "double taxation," but let’s actually break it down. The reality is, C-Corps provide real financial and legal separation, while S-Corps just disguise liability as savings.
The Truth About "Double Taxation"
Yes, C-Corps pay corporate taxes on their profits.
But owners of a C-Corp don’t have to take distributions—they can retain earnings in the company and reinvest.
C-Corp owners can take dividends, which are taxed at capital gains rates—sometimes as low as 0% if you’re in the right tax bracket.
If structured properly, a C-Corp can be taxed more efficiently than an S-Corp.
The Real Benefit: You Are NOT Personally Liable
A C-Corp is its own legal entity—it exists separately from you.
You don’t personally guarantee loans or credit.
If the business is sued, you are not personally at risk.
Your name isn’t tied to the company in public records the way it is with an LLC.
A C-Corp is truly separate—unlike an LLC taxed as an S-Corp, which still makes you personally responsible for taxes and liabilities.
The Bottom Line: Why Would You Sell Yourself Out for a Tax Gimmick?
So, let’s recap: If you elect S-Corp status, you’re not actually saving on taxes—you’re trading personal liability for perceived tax benefits that don’t really exist.
You still pay the full 15.3% tax—you just split it.
You are still personally liable for your business.
You still have to personally guarantee loans.
You don’t have the legal separation a C-Corp provides.
A C-Corp truly separates you from your business and lets you build real business credit, retain earnings, and qualify for corporate funding without your personal name attached.
So, you thought you were saving, but the joke was always on you. You sold yourself out for a tax savings that never really existed.
The Real Question: Is Saving a Few Dollars Worth Sacrificing Your Personal Financial Security?
The choice is yours—but don’t say no one told you.what