[soaponarope]

In an LLC all income is passed through to the owner(s) personal tax returns. An S Corp will pay the officer(s) a reasonable salary and an excess capital is return to owners through a dividend which is taxed a lower rate than normal income. All gains by the LLC pass through as normal income.

[hsitz]

No, the non-salary income is not "qualified dividends" and does not qualify for the 15% rate. It is taxed as "ordinary income", just like the salary. The advantage of S-Corp taxes has nothing to do with lower tax rates. It has to do with fact that FICA and Medicare taxes are taken out only from the portion of income designated as "salary". So you effectively save about 15% (i.e., the rate of FICA/Medicare withholding) for income that is above your salary to point where FICA/Medicare is phased out (around $100k).

Also others are correct in saying that an LLC can elect to be taxed as an S-Corp. S-Corp is a concept in the tax code, not a form of ownership itself. That is, if you create a corporation with the state, that corporation is just a "corporation", not an S-Corp or a C-Corp. Your corporation will be classified as an S-Corp or C-Corp depending on how you elect to file taxes with the IRS. It's similar with an LLC, which you create with the state, then can elect what tax treatment you will use with IRS: typically as sole proprietorship, partnership, or S-Corp.

[jazzyk]

This is incorrect, at least for for an S Corp. The rest of the money (after you pay salaries AND deduct valid business expenses) is distributed to shareholder(s) as shareholder distributions using Schedule K-1, not dividend (terminology is important, they are not one and the same).

Shareholder distributions then add (or subtract if you lost money) to/from shareholder individual incomes. It is taxed at the same level as other income.

[zrail]

One important point that people tend to ignore/forget: every dime of income after salaries and expenses counts as a distribution for tax purposes, even if the money stays in the company bank account. Shareholder/member distributions are not taxable events.