By Craig Weinstock, CPA
When launching or restructuring a business, choosing the right entity is more than a legal formality; it’s a key part of your business tax strategy. Your business structure affects how much you pay in taxes, what paperwork you file, and how you distribute profits.
Here’s a breakdown of the most common options and how they impact tax efficiency.
Sole Proprietorship & Single-Member LLC
These are the simplest forms of business. All income flows to your personal return, making them easy to manage.
Tax efficiency:
Straightforward, but you’ll pay self-employment tax on all profits. No separation between personal and business income.
Best for: Freelancers, consultants, and low-risk solo businesses.
Multi-Member LLC & Partnerships
Profits pass through to the owners, and each files a Schedule K-1 with their portion.
Tax efficiency:
Still subject to self-employment tax, but flexible for multiple owners. No double taxation.
S Corporation (S Corp)
An S Corp allows business owners to separate income into salary and distributions, which can reduce employment taxes.
Tax efficiency:
Only the salary is taxed for Social Security and Medicare. Distributions are not, which can reduce your tax liability, but the IRS requires your salary to be “reasonable” compensation.
Ideal for: Businesses earning $100K+ looking to optimize tax burdens.
C Corporation (C Corp)
C Corps pay corporate taxes, and any dividends distributed to shareholders are taxed again personally. This is known as double taxation.
Tax efficiency:
Not always ideal for small businesses but can offer tax-deductible fringe benefits and a better fit for high-growth companies or those seeking investors.
How to Decide
Your best choice depends on:
- Business income
- Number of owners
- Growth goals
- Desired tax savings
Making the wrong choice can mean paying more in taxes than necessary. That’s why we help business owners structure smarter with a tailored business tax strategy. Need help choosing the most tax-efficient structure? Call 732-592-1230 to schedule your personalized consultation with Craig Weinstock, CPA.
