Chosen for the wrong reason
An LLC was the default at the attorney's office, or a friend said “S-corp saves tax.” Neither is a model of your actual distributions and payroll.
Tax service
Entity structuring & selection
The right entity is not a rule of thumb. It is an arithmetic question about payroll tax, the QBI deduction, basis, state exposure and how you eventually exit. We do the arithmetic.
The problem
The structure you started with rarely stays optimal
Most entities are chosen at formation, when the business looks nothing like it does today.
Self-employment tax leakage
A profitable single-member LLC can pay thousands in avoidable self-employment tax each year, but an S-election has its own costs, and reasonable compensation is not optional.
Structure that blocks growth
The entity that worked for one owner in one state becomes an obstacle when you add partners, raise capital, expand across state lines or plan a sale.
What we do
How we approach entity choice
Entity selection is a modeling exercise with at least six variables. Any answer that ignores one of them is a guess.
- Side-by-side entity modelSole proprietorship, partnership, S-corp and C-corp compared on total cash tax (federal, payroll and state) at your actual profit level.
- Reasonable compensation analysisFor S-corps, a defensible wage figure supported by role, market data and hours, because an unreasonably low salary is the single most-audited S-corp position.
- QBI / Section 199A interactionEntity form drives the W-2 wage limitation and UBIA basis, which drive whether the 20% deduction survives at your income level.
- Basis, at-risk and loss usageWhether losses will actually be deductible when you need them: stock and debt basis for S-corps, outside basis and guarantees for partnerships.
- Multi-entity and holding structuresOperating company, property company and management company arrangements, including the intercompany agreements that make them respectable.
- Exit and succession consequencesHow the structure affects an asset versus stock sale, Section 1202 qualified small business stock, and the step-up your buyer will want.
- Conversion mechanics and timingElection deadlines, Form 2553 and 8832 filings, built-in gains exposure, and the late-election relief available under Rev. Proc. 2013-30.
How it works
A process you can follow
Four stages, with a defined deliverable at each one. You always know where the work stands.
1
Fact-find
Ownership, state footprint, profit trajectory, distribution habits, payroll, and where you expect to be in five years.
2
Model
We build the comparison at current profit and at two projected levels, because the right answer at $250k is often the wrong answer at $2M.
3
Recommend
A written recommendation with the annual cash-tax difference, the one-off conversion cost, and the risks of each route stated plainly.
4
Implement
Elections filed, effective dates managed, payroll set up, operating agreements flagged for your attorney, and the first year monitored.
Who it's for
When it is worth revisiting
Entity structure deserves a fresh look whenever the shape of the business changes, not on a fixed schedule.
Profit crossing ~$100k Adding or buying out an owner Expanding into a second state Raising outside capital Buying real estate in the business Planning a sale in 3–5 years Currently a Schedule C
Deliverables
What you get
- A side-by-side cash-tax model across all viable entity forms
- A reasonable-compensation figure with documented support
- A written recommendation, including the case against it
- All elections prepared and filed, with deadlines tracked
- A note for your attorney on the governing-document changes required
2553
S-election filed and tracked to acceptance
199A
QBI modeled, not assumed
5-yr
Exit consequences considered up front
Questions
Frequently asked
Sometimes substantially, sometimes not at all. The saving comes from distributions escaping self-employment tax, but you must first pay yourself reasonable compensation, and you take on payroll filings, a separate return, and stricter basis rules. Below roughly $80,000–$100,000 of profit the additional cost frequently outweighs the saving. We model it rather than assume it.
It is what you would have to pay someone else to do your job. The IRS looks at duties, hours, experience, comparable market salaries, and what the company can afford. There is no safe percentage, despite what you may read. We document the figure with market data so it can be defended if it is ever questioned.
Usually yes, but the cost is asymmetric. Converting an LLC to an S-corp is generally straightforward. Unwinding an S-election, or converting to a C-corp and back, can trigger built-in gains tax and a five-year waiting period. That is exactly why the exit consequences belong in the original decision.
It helps, and it is why the analysis differs from a New York or California business. Florida has no personal income tax, so the state-level cost of pass-through income is zero for residents. But Florida does impose corporate income tax on C-corporations, and if you have employees, property or sales in other states, those states will still want their share.
Related
Often paired with
Strategic Tax Planning
Multi-year projections that lower the bill before year-end.
Learn moreOwner, Executive & Succession
Compensation, retirement and exit planned together.
Learn moreBusiness Tax Returns
Forms 1120, 1120-S and 1065 filed accurately and on time.
Learn more