Why entity choice is really a cost question
People obsess over the legal differences between an LLC and an S-corp, but the first real decision is economic. Forming an LLC in Kentucky costs $40 in state filing fees; forming the same LLC in Massachusetts costs $500. That’s a 12x spread for an identical legal instrument. Layer on registered agent services ($100–$300 per year), an operating agreement ($0 for a template, $500–$1,500 for attorney-drafted), federal EIN registration ($0 direct from the IRS, $80–$250 from filing services), and annual report fees ($0–$800), and two entrepreneurs with identical businesses can spend $75 or $3,500 in year one based purely on the checkboxes they click.
This calculator puts every line item on the same page so you can compare apples to apples. No upsells, no “premium package” pressure — just the real dollars you’ll write a check for.
What each entity type really costs to form
Sole proprietorship / general partnership: Often free or near-free. You typically just need a DBA (“doing business as”) filing at the county level, which runs $10–$100 depending on the state. No registered agent, no operating agreement, no annual report. The catch: zero liability protection. Your personal assets are exposed to business lawsuits.
Limited Liability Company (LLC): The workhorse entity for small businesses. State filing fees range from $40 (Kentucky) to $500 (Massachusetts), with most states in the $100–$200 band. Add $100–$300 for a registered agent if you don’t want your home address on public record. Operating agreement is legally optional in most states but practically mandatory — $0 for a decent template, $500–$1,500 if you have an attorney draft one.
S-corporation: An S-corp is a tax election, not a separate entity type. You file as either an LLC or a C-corp first, then file IRS Form 2553 to elect S-corp status. The 2553 itself is free, but accountants typically charge $200–$500 to prepare and file it correctly. S-corps make sense once your net profit exceeds roughly $60,000–$80,000, at which point the self-employment tax savings outweigh the payroll and accounting overhead.
C-corporation: The most expensive to form and maintain. State filing fees typically run $100–$500, but you’ll also need corporate bylaws ($500–$2,000 drafted), a board of directors, stock certificates, and more rigorous record-keeping. Most solo founders should not default to a C-corp. The exception: if you plan to raise venture capital, investors generally require a Delaware C-corp.
State-by-state filing fee variation (LLC)
The gap between the cheapest and most expensive states is wider than people expect. Here are representative 2026 LLC filing fees:
- Cheapest: Kentucky ($40), Arkansas ($45), Mississippi ($50), Missouri ($50), Michigan ($50).
- Mid-range: Texas ($300), California ($70 filing + $800 annual franchise tax), New York ($200 + publication requirement that can run $1,500+), Florida ($125).
- Most expensive: Massachusetts ($500), Tennessee ($300+ scaled by members), Illinois ($150 filing + high annual reports).
If you’re a fully remote business, you can form in a low-cost state like Wyoming ($100) or Delaware ($90) and register as a foreign LLC in your home state. But be careful — most states require you to register as foreign and pay those fees anyway if you’re actually operating there, so the “Wyoming trick” often doesn’t save what people think.
The hidden recurring costs nobody mentions
Formation is a one-time event. Maintenance is forever. The annual costs that quietly add up:
- Annual report / franchise tax: $0 (Arizona, Missouri) to $800 (California) per year, every year, forever.
- Registered agent: $100–$300 annually if you use a service.
- Bookkeeping: $100–$400/month once you have real transaction volume.
- Tax prep: Sole prop is a Schedule C (often free with personal return). LLC taxed as partnership: $500–$1,200. S-corp: $800–$2,500. C-corp: $1,500–$5,000.
- Payroll (S-corp only): $40–$80/month through Gusto, ADP, or similar.
Stack all of this up and a California S-corp can easily cost $3,000–$6,000 per year to maintain before you’ve earned a dollar. A Wyoming LLC with no payroll and a single-member passthrough tax treatment might cost $150/year total.
When to DIY vs. hire an attorney
Formation services like LegalZoom, ZenBusiness, and Incfile charge $0–$300 on top of state fees to file paperwork. Their value is real for first-time founders who don’t want to figure out Secretary of State portals, but you pay for it in upsells. A direct filing through your state’s official website costs just the state fee and takes 20–40 minutes.
Hire a business attorney ($1,500–$5,000 flat fee) when: you have co-founders and need a real operating agreement addressing buyout triggers, IP assignment, and deadlock resolution; you’re raising outside capital; you’re forming a C-corp with equity splits; or you operate in a regulated industry like healthcare, finance, or alcohol.
Tax election math: when S-corp actually saves money
The S-corp pitch is that you split income between salary (subject to payroll tax) and distributions (not subject to self-employment tax). A rough rule of thumb: the savings kick in once net profit clears about $60,000/year, and become meaningful at $80,000+. Below that, payroll and tax prep overhead eats the savings.
Example: Net profit $120,000. As a single-member LLC taxed as a sole proprietor, you’d pay roughly $16,960 in self-employment tax. Elect S-corp, pay yourself a $60,000 “reasonable” salary and take $60,000 as distribution, and SE-equivalent taxes drop to about $9,180 — saving $7,780. Subtract $1,500–$2,500 in extra payroll, bookkeeping, and tax-prep costs, and you net $5,000–$6,000 in real savings per year.
Common formation mistakes that cost real money
- Mixing personal and business funds. A separate business bank account is free and takes 15 minutes. Commingling funds can “pierce the corporate veil” and erase your liability protection.
- Forgetting the S-corp election deadline. Form 2553 must be filed within 2 months and 15 days of entity formation (or the start of the tax year). Miss it and you’re stuck with default tax treatment for the year.
- Using your home address as registered agent. That address becomes public record — including to process servers, spam mail, and online scrapers. Pay the $100–$300 for a real service.
- Forming a C-corp because a Reddit comment said to. Unless you’re raising VC, the double taxation and complexity are not worth it.
Related calculators
- LLC cost by state — see the exact LLC filing and annual fee for every U.S. state.
- Trademark cost calculator — once you have an entity, protect the name.
- Contract value calculator — what your business contracts are worth in a dispute.
- Attorney fee calculator — what legal help actually costs by hour and flat fee.