Tennessee LLC vs S-Corp — Tax Election Analysis
In Tennessee, S-corp election reduces federal self-employment tax but does NOT eliminate the state-level franchise & excise tax. This makes the Tennessee S-corp calculation different from other states. For formation, see how to form a Tennessee LLC.
Tennessee-Specific S-Corp Reality
| LLC Default | LLC + S-Corp Election | |
|---|---|---|
| Federal SE tax | 15.3% on all net income | 15.3% only on salary |
| Tennessee F&E tax | Yes ($300 min) | Yes ($300 min) — unchanged |
| Tennessee personal income tax | $0 | $0 — unchanged |
| Payroll taxes (federal) | None | On salary portion |
| Net benefit | Simple | Federal SE savings only |
Key insight: In most states, S-corp election can also eliminate state-level entity or self-employment taxes. In Tennessee, the F&E tax persists regardless. The savings are purely federal.
When S-Corp Is Worth It in Tennessee
Still worth it when net income exceeds $50,000-$60,000 — the federal SE tax savings (15.3% on distributions above reasonable salary) remain significant regardless of state treatment.
FAQ
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Get StartedDoes S-corp eliminate Tennessee F&E?
No. F&E tax applies regardless of tax election. This is a critical Tennessee-specific fact.
Is S-corp still worth it then?
Yes, for federal SE tax savings. Just understand the benefit is solely at the federal level in Tennessee.