Starting or growing a business? Then you already know that every decision you make has financial consequences including how you structure your business. Get it right, and you could save thousands in taxes. Get it wrong, and you might end up paying more than you need to (or worse, dealing with unnecessary liability).
At Insogna CPA, we work with Austin’s entrepreneurs, small business owners, and growth-focused professionals to make sure they’re structuring their businesses for maximum tax efficiency and long-term success. Let’s break it down in plain English, so you can make the smartest move for your business.
Which Business Structure Saves You the Most on Taxes?
There’s no one-size-fits-all answer here. But if you’re running a business, odds are you’re choosing between an LLC, S-Corp, or C-Corp. Each has pros, cons, and tax implications that can either work in your favor or work against you.
1. LLC: Simple and Flexible, But Not Always the Best for Taxes
An LLC is easy to set up, offers liability protection, and lets you keep things simple. But while it’s great for keeping your personal assets separate from your business, it’s not always the most tax-efficient option.
How it’s taxed:
- By default, an LLC is treated as a pass-through entity, meaning profits flow directly to your personal tax return.
- That also means you’ll pay self-employment taxes on everything you earn—which can add up quickly.
- You do have the option to elect S-Corp taxation, which could save you money on taxes (more on that in a minute).
Who it’s good for:
- Entrepreneurs, freelancers, or small business owners who want simplicity and flexibility.
- Business owners who aren’t making high six figures yet but want liability protection.
2. S-Corp: The Tax-Saving Sweet Spot for Many Small Business Owners
The S-Corp election is one of the biggest tax-saving strategies out there yet so many business owners don’t realize they should be using it. Unlike an LLC, where every dollar of profit is subject to self-employment tax, an S-Corp lets you split your income between salary and distributions and only your salary is subject to payroll taxes.
How it’s taxed:
- As an S-Corp owner, you pay yourself a “reasonable salary” (which is subject to payroll taxes).
- The rest of your business income can be taken as distributions, which are NOT subject to self-employment tax.
- Translation? You could be saving thousands per year.
Who it’s good for:
- Business owners making at least $50,000 to $100,000 in profit annually.
- Entrepreneurs who want to keep more of their earnings without extra corporate complexity.
If you’re not sure whether an S-Corp is right for you, a quick chat with a CPA in Austin, Texas can give you clarity and likely save you money.
3. C-Corp: The Big Business Move (But Beware of Double Taxation)
The C-Corp is its own legal entity, meaning it pays its own taxes separately from the owner. While this sounds great in theory, it comes with something called double taxation. The company pays taxes on its profits, and then owners pay taxes on dividends received.
How it’s taxed:
- The company pays a flat corporate tax rate of 21% on its profits.
- Owners then pay capital gains tax on any dividends received.
- The upside? C-Corps offer more tax deductions and benefits, especially for businesses planning to reinvest profits.
Who it’s good for:
- Business owners planning to seek investors, raise capital, or go public.
- Companies that expect to reinvest most of their profits rather than taking large distributions.
What’s the Best Business Structure for You?
Here’s the truth: there is no “best” business structure—only the one that works best for your specific situation. The wrong choice could cost you thousands in unnecessary taxes, while the right one could protect your earnings and set you up for long-term financial success.
At Insogna CPA, one of the most trusted Austin accounting firms, we specialize in helping business owners like you minimize taxes, maximize profits, and make smarter financial decisions.
If you’re not sure whether you should be an LLC, S-Corp, or C-Corp or if you think it might be time to switch to a more tax-efficient structure, we’re here to help.
Let’s find the best fit for your business today. Schedule a consultation with an experienced CPA in Austin, Texas.