Most small business owners don’t think twice about their business structure after they set it up. But here’s the thing, your entity type can seriously impact how much tax you pay each year.
And if you haven’t reviewed it recently, there’s a good chance you’re leaving money on the table.
Your business structure, whether you’re a sole proprietorship, partnership, LLC, S Corp, or C Corp, determines how your income is taxed. It affects:
How much you pay in self-employment taxes
Whether your income is taxed once or twice
What deductions or benefits you can access
How you take money out of the business (salary, draws, dividends)
Even if your structure was the right choice when you started, it may not be anymore, especially if your income has grown.
Here are a few ways your structure could be costing you:
Sole Proprietors and Single-Member LLCs often pay self-employment tax (currently 15.3%) on all their net profit. That adds up fast.
LLCs taxed as partnerships may miss out on optimizing salary vs. distribution strategies.
S Corps can reduce self-employment tax, but only if set up and maintained properly.
C Corps can trigger double taxation, once at the corporate level, and again when profits are distributed.
No entity type is “the best” across the board. The right structure depends on:
How much profit you earn
Whether you have partners or investors
How you plan to take money out
Your long-term goals (e.g. exit, growth, tax planning)
That’s why business structure should be reviewed periodically, not just set and forgotten.
You don’t need a full tax overhaul to see savings. But it might be time to revisit your structure if:
Your business is now earning more than $100K in net income
You’re paying a lot in self-employment tax
You want to take distributions or dividends but aren’t sure how
You haven’t reviewed your entity type in 2+ years
Bottom Line:
Your business structure plays a huge role in how much tax you pay. And if you haven’t re-evaluated it since you started, you might be overpaying without realizing it.
A quick check-in with a tax advisor could save you thousands, every single year.
If you have any questions or wish to discuss your entity structure, tax planning or need to file taxes.
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