LLC vs S-Corp for Solo Tradespeople: How to Save on Taxes

The Quick Answer

For most first-time self-employed tradespeople (plumbers, roofers, flooring installers), an LLC (taxed as a sole proprietor) is the smartest starting point. It’s simple, flexible, and keeps your personal money safe. When your trade business starts consistently making over $50,000 in net profit after all your job costs, supplies, and gas, that's when you should look at electing S-Corp status. This can save you a good chunk of money on self-employment taxes. A C-Corp is almost never the right choice for a solo tradesperson, unless you plan to build a huge company and bring in outside investors, which isn't typical for this kind of business.

Side-by-Side Breakdown

LLC (default, pass-through): Imagine you're a solo plumber clearing $70,000 in net profit for the year (after paying for your pipe, fittings, tools, and truck maintenance). Every dollar of that $70,000 is hit with self-employment tax (15.3% on the first $168,600 of net earnings in 2026). This income flows directly to your personal tax return. It's the simplest setup to manage – fewer forms, less hassle, letting you focus on jobs. No 'double taxation' where the business pays tax and then you pay tax again.

LLC with S-Corp Election: You're still an LLC, but the IRS treats you differently for taxes. Now, you pay yourself a 'reasonable salary' (say, $50,000 for that busy plumber). This salary is subject to payroll taxes (Social Security and Medicare). Any profit left over ($20,000 in our $70,000 example) can be taken as an 'owner's distribution.' That distribution *isn't* hit with the 15.3% self-employment tax, saving you money. The downside: you'll have payroll costs, more tax forms each quarter, and likely need a CPA, which adds to your overhead.

C-Corp: This is usually overkill for a solo tradesperson. A C-Corp's profits are taxed at 21% federally *before* you even pay yourself. Then, when you take money out as a salary or dividend, you pay personal income tax on it. That's 'double taxation.' C-Corps are for big businesses looking to sell shares to venture capitalists or go public, not typically for a self-employed roofer.

When to Stay an LLC

Stick with the default LLC when your net profit, after all your job expenses and truck upkeep, is under $50,000 a year. The tax savings from an S-Corp won't be enough to cover the extra costs of payroll and CPA fees. Keep it simple while you're building your client base and getting your business off the ground. You want to spend your time on job sites, not doing complicated paperwork. This setup also gives you the most flexibility if you eventually bring on a partner.

When to Elect S-Corp Status

Consider the S-Corp election when your trade business is consistently bringing in over $50,000 in net profit. For example, if your tiling business is grossing $150,000 a year, and after materials, subcontractors, and fuel, you're clearing $80,000 in profit. If you pay yourself a reasonable plumber's salary of $55,000, you save the 15.3% self-employment tax on the remaining $25,000 distribution. That's nearly $3,800 in annual tax savings. This money can go towards a new sprayer, a better tool set, or your retirement fund. Your CPA can help you figure out the exact break-even point for your state.

When to Form a C-Corp

This is very unlikely for a solo tradesperson. You'd only form a C-Corp if you plan to raise money from venture capitalists or institutional investors, who typically require C-Corps. This means you're building a business far beyond a typical solo plumbing or electrical service, perhaps a massive franchise or a tech platform for trades. If that's not your plan, skip the C-Corp. The administrative burden and double taxation are simply not worth it for the vast majority of self-employed contractors.

The Verdict

Start simple: set up an LLC. It protects your personal stuff and keeps taxes straightforward while you focus on doing great work. When your net profit for your roofing, plumbing, or flooring business reliably hits $50,000 to $80,000 (check with your CPA for the exact number for your area), then explore the S-Corp election to cut down on self-employment taxes. Don't even think about a C-Corp unless you're planning to raise serious outside investment—it's just too much hassle and cost for a solo tradesperson.

How to Get Started

LLC Formation: File 'Articles of Organization' with your state's Secretary of State office (costs $50-$500 depending on where you live). Get an Employer Identification Number (EIN) from irs.gov—it's free and quick. Then, open a business bank account for your plumbing, electrical, or drywall business.

S-Corp Election: Once your business is growing, file IRS Form 2553. You usually need to do this within 75 days of the start of the tax year you want it to apply. Before filing, sit down with a CPA to decide on a 'reasonable salary' for yourself based on what other tradespeople in your area make.

C-Corp: Again, this is usually not for solo tradespeople. But if you were building a massive, investor-backed trade services company, you'd typically incorporate in Delaware and use a service like Stripe Atlas or Clerky.

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