Choosing a business structure isn’t just a bureaucratic box to check. It’s one of the most important financial decisions you’ll make. It determines how much you pay in taxes, how much personal risk you take on, and how easy it will be to grow your business down the line.
Get it right, and you keep more of your hard-earned money. Get it wrong, and you could be overpaying in taxes or exposing your personal assets to risk. As a trusted CPA in Austin, Texas, we help business owners make informed choices that maximize tax savings and set them up for long-term success. Let’s break it down.
The Three Main Business Structures and What They Mean for You
Before we talk tax savings, here’s a quick look at the three most common structures for small businesses.
1. Sole Proprietorship: Simple, But Not Always Smart
A sole proprietorship is the default business structure if you’re running a business on your own and haven’t formally registered as an LLC or corporation.
What’s good about it?
- Easy to set up—no legal filings required.
- No separate business tax return—profits go straight to your personal tax return (Schedule C).
What’s not so great?
- No legal protection—your personal assets are on the line if your business is sued or takes on debt.
- High self-employment taxes—you pay 15.3% in Social Security and Medicare taxes on all net profits.
Best for:
Freelancers, solopreneurs, and small businesses with minimal liability risks. But if you’re making serious money or hiring employees, an LLC or S-corp could save you thousands.
2. LLC (Limited Liability Company): Protection with Flexibility
An LLC gives you personal liability protection while keeping things flexible on the tax front.
Why business owners love LLCs:
- Protects your personal assets—your business debts and lawsuits don’t touch your personal finances.
- Tax flexibility—you can be taxed as a sole proprietor, partnership, or even elect S-corp status for tax savings.
Where LLCs fall short:
- If you don’t elect S-corp taxation, you’re still paying 3% self-employment tax on ALL profits.
- Slightly more paperwork than a sole proprietorship, but still far simpler than a corporation.
Best for:
Entrepreneurs looking for legal protection and tax flexibility without the complexity of a full corporation.
3. S-Corp: The Tax-Saving Power Move
An S-corporation (S-corp) isn’t a business structure—it’s a tax election you can make as an LLC or corporation to reduce self-employment taxes.
Why S-corps make financial sense:
- Instead of paying self-employment tax on ALL profits, you only pay it on your salary. The rest is taxed at lower rates as distributions.
- This can lead to massive tax savings, especially if you’re making $50K+ in net profit.
What’s the catch?
- You’re required to pay yourself a reasonable salary—the IRS won’t let you take all profits as tax-free distributions.
- Slightly more admin—payroll, bookkeeping, and additional tax filings.
Best for:
Business owners netting over $50,000 per year who want to cut self-employment tax and keep more of their earnings.
How Much Can the Right Business Structure Save You?
Let’s break it down with an example.
Imagine you own a service business and bring in $100,000 in net profit. Here’s what your tax bill could look like under different structures:
Business Structure | Self-Employment Tax (15.3%) | Income Tax | Total Tax Paid |
Sole Proprietor (Default LLC) | $15,300 | Varies | Higher tax bill |
LLC taxed as an S-Corp | $7,650 (on a $50,000 salary) | Varies | Lower tax bill |
By electing S-corp status, you could cut your self-employment tax in half saving over $7,500 per year. That’s money you could reinvest into your business, hire more staff, or put into your retirement account.
A small business CPA in Austin can help you determine if an S-corp election makes sense for your specific situation.
What About Real Estate Investors?
If you own rental properties, keeping them in your personal name might be tax-efficient, but it also means zero liability protection if something goes wrong.
- LLCs protect real estate assets and shield personal finances from lawsuits.
- S-corps can be useful for property flipping to avoid self-employment tax on profits.
A tax advisor in Austin can help real estate investors structure ownership to maximize both tax savings and legal protection.
How to Choose the Best Business Structure for You
Still unsure which business entity makes the most sense? Here’s a simple guide:
- Just getting started? A sole proprietorship or LLC works fine.
- Earning over $50K? Consider an S-corp election to reduce self-employment taxes.
- Real estate investor? An LLC can protect assets, while an S-corp helps reduce taxes on flips.
Let’s Structure Your Business for Maximum Savings
Your business structure isn’t just a legal decision. It’s a financial one. The right setup can mean thousands in tax savings, liability protection, and an easier path to growth.
At Insogna CPA, one of the top CPA firms in Austin, Texas, we help business owners:
- Maximize tax savings with the right entity structure.
- Minimize liability while keeping operations flexible.
- Build a solid financial foundation for long-term success.
Let’s make sure your business is structured for success. Schedule a consultation with an expert Austin tax accountant today.