An S-Corp isn't actually a business entity type, it's a tax election that your corporation or LLC can make with the IRS. When you elect S-Corp status, your business profits and losses pass through to your personal tax return, similar to a partnership or sole proprietorship, but with important differences in how you're taxed.

The key difference is in self-employment tax treatment. Regular LLC owners pay self-employment tax on all business profits, but S-Corp owners who work in the business must take a reasonable salary (subject to payroll taxes) and can take additional profits as distributions that aren't subject to self-employment tax.

This creates potential tax savings because you're only paying Social Security and Medicare taxes on your salary portion, not on the entire business profit. However, you're also taking on payroll processing requirements and other compliance obligations.