The Most Expensive Decision Most Business Owners Ignore
Entity structure is the single highest-leverage tax decision you can make — and most business owners set it once and never revisit it. As your revenue grows, the optimal structure changes.
How Self-Employment Tax Works
As a sole proprietor or single-member LLC, you pay 15.3% self-employment tax on your net income. On Custom Consultation of net income, that's Custom Consultation — before federal income tax. This is the cost that S-Corp elections are designed to reduce.
The S-Corp Strategy
When you elect S-Corp status, you split your income into two buckets: a "reasonable salary" (subject to payroll taxes) and a distribution (not subject to self-employment tax). On Custom Consultation of net income with a Custom Consultation salary, you save approximately Custom Consultation in SE taxes annually.
When the S-Corp Makes Sense
The S-Corp election adds complexity — payroll processing, quarterly 941 filings, W-2 generation, and increased CPA costs. It generally makes financial sense when your net profit exceeds Custom Consultation–Custom Consultation annually, depending on your situation.
LLC Flexibility You Shouldn't Overlook
LLCs offer pass-through taxation, flexible profit/loss allocation among members, and less administrative overhead. For businesses with multiple owners or complex equity structures, an LLC operating agreement is often more flexible than S-Corp restrictions.
The Analysis We Run for Our Clients
We model both scenarios for every client at the right revenue threshold — actual projected tax liability, compliance costs, and the break-even point. The answer depends on your specific income, deductions, and business situation.