Q&A with Christina: LLC vs S-Corp Wage Deductions Explained

Q: I had a tax consultant say that an LLC can't write off staff wages on taxes but an S-corp can. Is this true? It doesn't make sense to me.

A: This is a common misconception that needs clarification—the answer depends on who is being paid and how your LLC is taxed.

For wages paid to employees (not owners): Both LLCs and S-corps can fully deduct wages paid to staff members. If you have employees working for your business who are not owners, those wages are a legitimate business deduction regardless of whether you operate as an LLC or S-corp.

Where the difference matters—owner compensation:

LLC (taxed as sole proprietorship or partnership):

• Wages you pay yourself or your spouse (if filing jointly) are NOT deductible as business expenses

• Instead, you take the profit as owner draws, which are already reflected in your net income

• You can't write off your own "salary" because you're not technically an employee

S-corp:

• Wages paid to yourself as an owner-employee ARE deductible business expenses

• This includes reasonable compensation for your work in the business

• The IRS requires S-corp owners who work in the business to pay themselves a reasonable salary

Bottom line: Your consultant likely meant that owner wages aren't deductible in an LLC structure, while they are in an S-corp. But regular employee wages are deductible in both structures. This is actually one of the key tax advantages of S-corp status—the ability to deduct your own reasonable salary as a business expense.