The Difference Between an LLC and an S-Corp Cost One Business Owner $37,000 a Year
Case Study Summary
Two business owners with nearly identical revenue made very different choices about how to structure their businesses. One was paying $37,000 more in self-employment taxes each year than he needed to — simply because of the entity he chose when he started out.
Entity Selection Has Long-Term Consequences
The choice of business entity affects taxes, liability exposure, ownership flexibility, and eventually how the business can be sold or transferred. Most small business owners make this decision quickly and early — and then live with the consequences for years without revisiting whether it still makes sense.
The S-Corporation Advantage
For many profitable small business owners, converting from a sole proprietorship or single-member LLC to an S-corporation can reduce self-employment taxes significantly. The key is establishing a reasonable salary, which then allows the remaining profits to flow through without being subject to self-employment tax.
When to Revisit Your Structure
Business structure should be reviewed regularly — and certainly when revenue grows significantly, when the business brings in partners, when planning for an exit, or when tax law changes. What was optimal at startup may be costing you money today.
Who This Strategy Is Best For
- ✓Sole proprietors or single-member LLC owners with growing revenue
- ✓Business owners who have never reviewed their entity structure
- ✓Entrepreneurs planning to bring on partners or investors
- ✓Business owners considering an eventual sale or exit
- ✓Self-employed professionals paying significant self-employment tax
Explore Your Strategy
Speak directly with Rajiv Rebello to see how this strategy fits into your comprehensive tax plan.