Entity Structure Matters

Intro:

Most business owners choose their business entity during the early stages of formation—and rarely revisit it. But as your business grows, that one-time decision could be quietly draining tens of thousands of dollars in avoidable taxes each year. If you’ve never taken a strategic look at your business structure with a tax strategist, you’re likely leaving money on the table.

The Reality:

The U.S. tax code treats sole proprietors, LLCs, S-Corps, and C-Corps very differently. Each entity type comes with its own advantages and risks—not just in terms of tax liability, but also in how you pay yourself, protect your assets, and position your business for growth or exit.

For example:

LLCs offer simplicity and flexibility, but profits are typically subject to self-employment taxes.
S-Corps can reduce self-employment tax exposure by splitting income into salary and distributions—but require proper payroll and compliance.
C-Corps might be ideal for reinvestment-heavy businesses or those seeking to attract investors, but they come with the risk of double taxation if not managed strategically.

The Missed Opportunity:

Entity structure isn’t a “set it and forget it” decision. A business making $150,000 in net profit will have a very different tax outcome depending on how it’s classified. Without reviewing and adjusting your structure as income grows, you could be paying far more than necessary in self-employment taxes, missing out on retirement benefits, or losing leverage in a potential sale.

The Strategy:

A periodic “entity audit” can reveal immediate savings and set the stage for better long-term planning. Working with a tax strategist ensures your business structure evolves with your goals—from reducing your tax bill now, to setting up a tax-efficient exit in the future.

Take Action:

If your income has changed, or if you haven’t revisited your entity structure in the last 2–3 years, it’s time for a strategic review and stop giving the IRS more than you legally owe.