Choosing the right Delaware entity can save—or cost—thousands during your startup’s first tax year. This guide compares Single-Member LLCs (SMLLCs) and C Corporations (C-Corps) on federal, state, and self-employment taxes so you can launch in 2025 with clear numbers.
Relevant IRC Codes & Definitions
| Code | Impact on Year-1 Taxes |
|---|---|
| IRC §1 | Progressive individual tax rates applied to SMLLC profits reported on Form 1040. |
| IRC §1402 | Imposes 15.3 % self-employment (SECA) tax on SMLLC net earnings (up to the wage base). |
| IRC §11 | Flat 21 % federal tax on C-Corp taxable income—no SECA. |
| IRC §162 | Allows deduction of ordinary and necessary business expenses in either structure. |
| IRC §301–§316 | Governs corporate distributions (double taxation if C-Corp pays dividends). |
IRS & State Form References
| Purpose | SMLLC | C-Corp |
|---|---|---|
| Federal Return | Form 1040 + Schedule C, SE | Form 1120 |
| Entity Election (optional) | Form 8832 or 2553 | N/A (default C-Corp) |
| Delaware Filing | Flat $300 LLC Tax (due 1 Jun 2026) | Franchise Tax (min $400 using Assumed Par) + Annual Report (due 1 Jun 2026) |
Real-World Example (2025)
| Metric | SMLLC | C-Corp |
|---|---|---|
| Revenue | $200,000 | $200,000 |
| Expenses | $60,000 | $60,000 |
| Net Income | $140,000 | $140,000 |
| Fed. Income Tax* | ≈ $27,000 (22 % bracket) | $29,400 (21 %) |
| SECA (15.3 % on $140k) | $21,420 | — |
| Owner Salary** | N/A | $80,000 (deductible) |
| Payroll Taxes on Salary | — | $12,240 (employer + employee) |
| Total Year-1 Tax | ≈ $48,420 | ≈ $41,640 |
* Assumes standard deduction; no 199A QBI.
** Reasonable salary reduces corporate income and SECA exposure.
Step-by-Step Comparison for Founders
- Estimate Profit – High profit + low reinvestment may favor C-Corp deferral.
- Calculate SECA – 15.3 % applies only to SMLLC profits.
- Project Dividend Policy – Paying dividends triggers double taxation.
- Consider Investor Preference – VCs almost always require a C-Corp.
- Include Delaware Costs – $300 vs. variable Franchise Tax.
- Run Two-Year Forecasts – Break-even point often in Year 2–3.
- Consult a CPA before filing Form 8832 (LLC-to-Corp election) or Form 2553 (S-Corp).
Conclusion
- Bootstrapped, low-profit founders often stay SMLLC for simplicity—even with SECA.
- High-growth, VC-bound startups generally choose C-Corp to reinvest profits, pay salaries (not draws), and satisfy investors.
Model your cash flow, then pick the structure that leaves more cash in your runway.
Call to Action
Not sure which path maximizes your Year-1 cash?
👉 Book a tax-entity strategy call with Anshul Goyal, CPA and build a launch plan that fits your funding goals and payroll needs.
Disclaimer
This comparison is provided for informational purposes only and does not constitute tax, legal, or financial advice. Actual tax outcomes depend on individual income, deductions, state nexus, shareholder residency, and payroll strategy. Always consult a licensed professional before filing entity elections or tax returns.
Anshul Goyal, CPA EA FCA is licensed in the United States, admitted to practice before the IRS, and a Chartered Accountant in India. He advises SaaS and tech founders worldwide on Delaware formations, entity conversions, payroll design, and IRS compliance.
FAQs (Top 5 High-Searched)
- Does an SMLLC pay self-employment tax on every dollar of profit?
Yes—15.3 % up to the Social Security wage base, then 2.9 % Medicare. - Can my SMLLC elect S-Corp status later?
Yes—file Form 2553 and start taking a reasonable salary to cut SECA. - Is double taxation always worse?
Not if profits are reinvested; dividends create the second layer. - Do both entities owe Delaware Franchise Tax?
LLCs pay $300 flat; C-Corps pay share-based tax plus an Annual Report. - Can I convert an LLC to a C-Corp before raising capital?
Yes—Delaware allows statutory conversion without dissolving the LLC.
About Our CPA
Anshul Goyal, CPA EA FCA has guided 2,000+ SaaS founders through entity selection, saving over $200 million in combined taxes. His firm delivers 48-hour turnaround on Delaware formations, conversions, and first-year tax planning.