Offer your thoughts or opinion on the input financial query or topic using your financial background.

Is this formula accurate for weighing the difference between an S-Corp and LLC?
It might be best to step back and look at the core information first.  You're evaluating an LLC vs a Corporation (both corporate entities).  Both have one or more members, and both are seen similarly (emphasis on SIMILAR here, they're not all the same) to the IRS.  Specifically, LLC's can opt for a pass-through tax system, basically seen by the IRS the same way an S-Corp is. Put another way, you can be taxed as a corporate entity, or it's P/L statements can "flow through" to your personal taxes.  When you opt for a flow-through, the business files and you get a separate schedule to tie into your taxes.  You should also look at filing a business expense schedule (Schedule C) on your taxes to claim legitimate business expenses (good reference point here). While there are several differences (see this, and this, and this) between these entities, the best determination on which structure is best for you is usually if you have full time employ while you're running the business.  S corps limit shares, shareholders and some deductions, but taxes are only paid by the shareholders.  C corps have employees, no restrictions on types or number of stock, and no restrictions on the number of shareholders.  However, this means you would become an employee of your business (you have to draw monies from somewhere) and would be subject to paying taxes on your income, both as an individual, and as a business (employment taxes such as Social Security, Medicare, etc). From the broad view of the IRS, in most cases an LLC and a Corp are the same type of entity (tax wise).  In fact, most of the differences between LLCs and Corps occur in how Profits/losses are distributed between members (LLCs are arbitrary to a point, and Corps base this on shares). Back to your question IMHO, you should opt for an LLC.  This allows you to work out a partnership with your co-worker, and allows you to disburse funds in a more flexible manner.  From Wikipedia : A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members' distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law. Hope this helps, please do let me know if you have further questions.  As always, this is not legal or tax advice, just what I've learned in setting several LLCs and Corporate structures up over the years. EDIT: As far as your formulas go, the tax rate will be based upon your personal income, for any pass through entity.  This means that the same monies earned from and LLC or an S-corp, with the same expenses and the same pass-through options will be taxed the same. More reading: LLC and the law (Google Group)