Business Entity Comparison (2025): Sole Prop vs. LLC vs. S‑Corp vs. C‑Corp — What’s Best for You?

bryan83977
Oct 13
3 min read

Choosing the right business entity affects your taxes, liability, payroll, benefits, and even how much admin work you do each year. Here’s a concise 2025 guide comparing the most common choices — built from our in‑office reference chart and day‑to‑day tax work with clients.

Updated: 2025-10-13

At a glance: Sole proprietorships and single‑member LLCs are simple but expose owners to self‑employment tax. S‑corps can reduce SE tax with reasonable salary + distributions. C‑corps allow broad fringe benefits but come with double taxation. Partnerships are flexible for multi‑owner setups.

Quick Comparison Table (2025)

Entity	Tax Forms & References	Accounting & Year‑End	Fringe Benefits	Owner Liability	Owner Pay
Sole Proprietor / Single‑Member LLC	Sch C or F; Sch SE; IRS Pub 334	Simpler books; typically calendar year	Limited; SE tax applies	SP: unlimited; SMLLC: limited (if respected)	Draws; subject to SE tax
Partnership / Multi‑Member LLC	Form 1065; Sch K‑1; IRC Subch K	More involved books; calendar or fiscal year with restrictions	Partners generally not “employees”; special rules for guaranteed payments	Limited for LLC members; general partners have personal exposure	Distributions + guaranteed payments; SE impact varies by role
S‑Corporation	Form 1120‑S; Sch K‑1; IRC Subch S	Requires payroll; calendar year usually required	Owner‑employees get typical employee benefits; health/retirement rules apply	Corporate veil if formalities observed	Reasonable salary + distributions (often SE‑tax efficient)
C‑Corporation	Form 1120; Pub 542; IRC Subch C	May require accrual + balance sheet; fiscal year allowed	Widest range of deductible fringe benefits	Corporate veil if formalities observed	W‑2 wages; profits taxed at corporate level (dividends taxed to owners)

When each structure fits best

Sole Proprietor / Single‑Member LLC

Best for: Simple, single‑owner businesses testing a concept or with modest profit.
Why choose: Minimal setup and bookkeeping. SMLLC adds liability shield when properly maintained.
Watchouts: All net profit typically subject to self‑employment tax; benefits are limited.

Partnership / Multi‑Member LLC

Best for: Two or more owners who want flexibility in allocations and governance.
Why choose: LLC liability protection (for members), flexible profit sharing.
Watchouts: K‑1s, basis/at‑risk tracking, and guaranteed payments complicate tax and payroll.

S‑Corporation

Best for: Owners actively working in the business with consistent profits.
Why choose: Reasonable salary + distributions can reduce self‑employment taxes.
Watchouts: Payroll + compliance requirements; shareholder limits and one class of stock.

C‑Corporation

Best for: Companies reinvesting profits, seeking outside capital, or needing rich benefits.
Why choose: Broader fringe benefits and planning options (e.g., fiscal year).
Watchouts: Double taxation (corporate + shareholder level); more formal accounting.

Key topics from our comparison chart

Taxes & Payroll

Sole Prop/SMLLC: Income on Sch C/F; SE tax via Sch SE.
Partnership: Pass‑through via K‑1; guaranteed payments are ordinary income.
S‑Corp: Pass‑through via K‑1; owner‑employee must take reasonable W‑2 wages.
C‑Corp: Corporate income taxed on Form 1120; dividends taxable to shareholders.

Accounting & Year‑End

Sole Prop: Simplest recordkeeping; usually calendar year.
Partnership: More involved books; some restrictions on fiscal years.
S‑Corp: Calendar year generally required; active payroll administration.
C‑Corp: May use fiscal year; accrual and balance sheet often required.

Fringe Benefits

Sole Prop: Limited deductions for owner; family employee rules apply.
Partnership: Partners aren’t employees; special rules for health insurance and retirement.
S‑Corp: 2% shareholder rules affect benefit taxation; still generally better than SP/partnership.
C‑Corp: Offers the broadest, most deductible benefits for owner‑employees.

Liability

Sole Prop: Unlimited personal liability.
LLCs, S‑Corps, C‑Corps: Liability shield when corporate formalities are followed.

How to decide

Profit level & volatility: Higher, steadier profits often favor S‑corp or C‑corp planning.
Headcount & benefits: Hiring and offering benefits may tilt toward corporate structures.
Ownership & fundraising: Multiple owners or outside investors may prefer LLC/partnership or C‑corp.
Administrative appetite: Simpler structures mean less compliance, but fewer tax tools.

Get personalized advice

We’ll walk you through entity selection, setup, payroll, and tax planning. Book a 15‑minute consult: info@burkinstax.com

Disclaimer: This article is for general education only and isn’t legal or tax advice. Rules can change and individual facts matter. Please consult our office for advice specific to your situation.