They are not alternatives
An LLC is formed with a state and decides who is liable for the business’s debts. An S-corporation is an election made with the IRS and decides how profit is taxed.
You can have either, both, or neither. The common real answer is both: an LLC that has elected to be taxed as an S-corp.
Asking which to choose is like asking whether to buy a car or insure it. The confusion is so widespread that it is worth stating the consequence plainly: forming an LLC and expecting your tax bill to change will disappoint you.
What an LLC changes
Liability, and very little else by default. A single-member LLC is taxed exactly like a sole proprietorship, on Schedule C, with no separate return. A multi-member LLC is taxed as a partnership.
It also brings state filing fees and annual reports, which vary enormously, and it makes a business bank account straightforward.
None of that is a reason to skip it. Liability separation is worth having. It is a reason not to expect it to do a job it does not do.
What the S-corp election changes
It splits your profit in two. You pay yourself a salary, which carries payroll tax, and take the rest as distributions, which do not carry self-employment tax.
That is the whole of the saving, and it is real. On a profit well above a defensible salary, the self-employment tax avoided on the distributed portion can be substantial.
It is also the whole of the risk. The salary has to be reasonable for the work you do, there is no formula for what that means, and paying yourself too little is the specific thing that gets examined.
What it costs to run
A separate federal return, Form 1120-S, prepared every year whether the business made money or not.
Actual payroll: filings, deposits and a W-2. Most people use a payroll service for this, which is a monthly cost.
A basis ledger, kept accurately, because distributions above basis are taxable and nobody computes basis for you.
Accounting fees that are generally higher than for a Schedule C, because there is more to do.
How to think about the threshold
The election is worth considering when profit is comfortably above a salary you could defend, because only the amount above that salary benefits.
The numbers circulating as thresholds are generalisations, and the honest answer is that it depends on your defensible salary, your state, and what compliance will cost you specifically.
It is also reversible only awkwardly, so it is worth deciding with somebody who knows your situation rather than from a calculator.