Choosing the Right Business Structure Can Save You Thousands. Are You Set Up for Success?
If you’re running a small business or investing in real estate, you’ve probably heard that forming an LLC is the best move. And it’s true. LLCs are easy, flexible, and give you liability protection.
But here’s the thing: staying an LLC forever might be costing you thousands in taxes.
Enter the S-Corp election. The tax-saving strategy that could keep more money in your pocket (if you switch at the right time).
At Insogna CPA, one of the top CPA firms in Austin, Texas, we help business owners choose the right structure, reduce their tax bill, and avoid IRS headaches.
So, should you stick with an LLC or switch to an S-Corp? Let’s break it down.
What’s the Difference Between an LLC and an S-Corp?
Not all business structures are created equal. Here’s what you need to know:
LLC (Limited Liability Company): Simple, but Tax Heavy
An LLC gives you legal protection while keeping things flexible and easy to manage.
- Separates business and personal assets, so you’re not personally liable.
- Less paperwork than corporations—good for small businesses and real estate investors.
- Downside? Self-employment tax.
Reality Check: Every dollar of LLC profit is hit with a 15.3% self-employment tax. That adds up fast.
S-Corp (S Corporation): The Tax-Saving Power Move
An S-Corp isn’t a business type. It’s a tax election that can save business owners a lot of money.
- Major tax savings—you only pay self-employment tax on your salary, not all profits.
- Pass-through taxation—no corporate taxes, just personal income tax.
- More paperwork & payroll setup—but the savings can be worth it.
Reality Check: An S-Corp reduces self-employment tax, which means more money stays in your pocket.
How Does an S-Corp Save You Money?
Let’s do the math.
Example: LLC vs. S-Corp Tax Savings
You run a consulting business and make $100,000 in profit.
As an LLC (No S-Corp Election):
- Entire $100K is subject to self-employment tax (15.3%).
- Total self-employment tax: $15,300.
As an S-Corp:
- You pay yourself a $50K salary (reasonable for your industry).
- The remaining $50K is taken as distributions, not subject to self-employment tax.
- Self-employment tax only on the $50K salary → $7,650 owed.
- Total tax savings: $7,650 per year.
That’s real money back in your pocket. Just for making the switch.
When Should You Switch to an S-Corp?
An S-Corp isn’t for everyone. The tax savings need to be greater than the extra costs of running payroll and filing additional tax forms.
Rule of Thumb:
- If your business profits are under $50K, stick with an LLC for now.
- If your business profits exceed $50K, an S-Corp election could save you thousands.
Not sure if it’s time? A tax advisor in Austin can run the numbers for you.
Common Mistakes to Avoid
Mistake #1: Paying Yourself Too Little in an S-Corp
The IRS requires S-Corp owners to take a “reasonable salary.” If you pay yourself too little, you could get audited.
Mistake #2: Switching to an S-Corp Too Soon
If your profits are low, the cost of extra payroll and tax filings might cancel out any tax savings.
Mistake #3: Assuming an S-Corp is Best for Real Estate Investors
If you own rental properties, an LLC is usually better than an S-Corp because of passive income rules (S-Corps don’t allow the same tax benefits for real estate).
So, LLC or S-Corp? Which One Is Right for You?
Stay an LLC if:
- You’re just starting out or testing your business idea.
- Your profit is under $50K per year.
- You want simple tax filing with no payroll requirements.
Elect S-Corp status if:
- Your profit exceeds $50K, and you want to reduce self-employment tax.
- You’re comfortable with payroll and additional IRS compliance.
- You don’t have foreign investors or more than 100 shareholders.
Still unsure? That’s where we come in.
How Insogna CPA Helps You Make the Right Choice
At Insogna CPA, one of the top CPA firms in Austin, Texas, we make sure your business structure is working for you, not against you.
- We analyze your income & tax situation to determine if an S-Corp switch makes sense.
- We handle all IRS paperwork (so you don’t miss deadlines or make costly mistakes).
- We set up payroll & ensure compliance so you avoid unnecessary tax penalties.
Get Expert Guidance on Structuring Your Business for Maximum Tax Savings. Let’s Talk!
Your business structure should help you keep more of your hard-earned money. If you’re unsure whether an LLC or S-Corp is best for you, let’s figure it out together.
Schedule a consultation with Insogna CPA today, and let’s make sure your business is structured for success!