🏛️ LLC vs. S Corp in Arizona: What’s the Difference and Which Is Right for You?
If you’re starting a business or looking to restructure an existing one, you’ve probably heard about LLCs and S Corporations. But what’s the difference—and which structure is right for Arizona business owners?
This post breaks down the LLC vs. S Corp comparison from both a legal and tax standpoint—so you can make the smartest choice for your business.
Quick Overview
LLC (Limited Liability Company): A flexible, easy-to-manage business structure that offers liability protection and simple tax treatment.
S Corporation (S Corp): A tax election (not a business type) that allows certain corporations or LLCs to avoid double taxation by passing income through to shareholders.
📌 You can form an LLC in Arizona and then elect S Corp tax treatment with the IRS—so it’s not either/or in all cases.
Legal Structure: What You File in Arizona
LLC:
Formed by filing Articles of Organization with the Arizona Corporation Commission
Governed by an Operating Agreement
Owned by members (individuals, other entities, or both)
S Corp:
Not a type of entity under Arizona law—it's a tax status granted by the IRS
Must be an eligible LLC or corporation first
Governed by corporate bylaws and requires corporate formalities
Tax Treatment: How the IRS Treats the Business
LLC Taxation:
Default: Pass-through taxation
Single-member = taxed like a sole proprietorship
Multi-member = taxed like a partnership
Can elect S Corp or C Corp tax treatment if desired
📌 An LLC structure, taxed as an S-Corp is different than an S-Corp structure
S Corp Taxation:
Still pass-through (no federal corporate tax), but with a twist:
Profits are split between:
Reasonable salary (subject to payroll taxes)
Distributions (not subject to self-employment tax)
📌 This split can save money on self-employment taxes—especially for businesses earning $75K+ in profit.
Pros and Cons: LLC vs. S Corp in Arizona
Liability Protection:
LLC: yes
S Corp: yes
Formation Cost:
LLC: low
S Corp: medium (LLC + IRS election)
Formalities:
LLC: few (esp. for single-member)
S Corp: more (bylaws, meetings, minutes)
Ownership Flexibility:
LLC: anyone can own
S Corp: restrictions (e.g. US citizens only)
Tax Filing Simplicity:
LLC: simple (Schedule C or 1065)
S Corp: more complex (1120-S + payroll)
Self-Employment Tax Savings:
LLC: no, unless S corp elected
S Corp: yes, if structured correctly
When to Consider an S Corp Election for Your Arizona LLC
Electing S Corp status makes sense if:
Your business nets $75,000+ annually
You can pay yourself a reasonable salary
You want to reduce self-employment taxes
You don’t mind extra IRS forms and payroll filings
It may not be worth it if:
Your business is new or has low profits
You want maximum flexibility in ownership or management
You want simple taxes without extra filings
How to Elect S Corp Status for Your Arizona LLC
Form your LLC with the Arizona Corporation Commission
Get your EIN from the IRS
File IRS Form 2553 within 75 days of formation (or by March 15 for existing LLCs)
Start paying yourself a reasonable salary via payroll
File your Form 1120-S annually
📌 You may also need to register for Arizona payroll taxes if you haven’t already.
Final Thoughts
LLCs and S Corps each offer unique advantages for Arizona small business owners. LLCs are simple and flexible. S Corps can deliver tax savings—but come with extra work.
The best choice depends on your income, goals, and tolerance for complexity.
Need help forming your LLC, evaluating S Corp status, or reviewing your structure? I help Arizona businesses set up smart legal foundations—so you can focus on growth, not paperwork.
Hurley Law Group
Business Formation & Legal Counsel for Arizona Entrepreneurs
📞 308-383-1867
🌐 hurleylawgroup.com
✉️ eric@hurleylawgroup.com