Saving Money and Making the Right Choice for Your Business Structure

As a small business owner, one of the biggest choices you’ll face is how to structure your business. Are you leaning towards forming a Limited Liability Company (LLC) or considering switching to an S-Corporation (S-Corp)? This decision isn’t just a legal formality; it affects your taxes, flexibility in operations, and ultimately your savings!

With decades of combined experience under our belts, our team of CPAs and tax experts has assisted countless entrepreneurs in navigating these waters. We understand the nuances of tax strategies and IRS regulations so you can make the most informed decision possible.

In this blog, we’re diving into the benefits and drawbacks of LLCs versus S-Corps. Our goal? To help you save money and pick the right business structure at the perfect time. Let’s break it down and find the best fit for your unique situation!

LLCs: Simplicity and Saving Time

Starting an LLC is a popular choice for many budding entrepreneurs, and it’s easy to see why! This business structure is not only flexible and simple to set up but also gives you a solid legal backbone. Here are some of the top benefits of forming an LLC that you definitely need to know about.

Minimal Paperwork: LLCs require less formal upkeep than corporations. No annual board meetings or complicated bylaws.Tax Simplicity: All income flows through to your personal tax return, so no separate business tax return is needed unless you have multiple members.No Payroll Required: As an owner, you’re not required to put yourself on payroll, making it simpler to manage income.

• Minimal Paperwork: LLCs require less formal upkeep than corporations. No annual board meetings or complicated bylaws.

• Tax Simplicity: All income flows through to your personal tax return, so no separate business tax return is needed unless you have multiple members.

• No Payroll Required: As an owner, you’re not required to put yourself on payroll, making it simpler to manage income.

When it comes to tax considerations for LLCs, there’s a crucial downside to keep in mind: the profits you make are hit with a 15.3% self-employment tax on your total net income. Ouch! This can really add up, especially for solo entrepreneurs or small businesses just starting out. Plus, you have to factor in your marginal income tax rate on top of that. While LLCs save you time and can help dodge some compliance headaches, they may not offer the same tax benefits as an S-Corp. It’s definitely something to think about when planning your financial future!

S-Corps: Advanced Saving Strategies

Once your business starts pulling in a consistent profit—usually around $50,000 to $60,000 a year after expenses—you should really think about making that S-Corp election. Trust me, it’s a game changer for tax savings and can make a big difference for your bottom line!

Key Benefits of an S-Corp:

• Split Income: As an S-Corp, you pay yourself a “reasonable salary” and take the rest of your profit as a distribution — avoiding self-employment tax on the distribution portion.

• Tax Savings: This one change can save thousands per year in payroll tax.

• Retirement and Benefits: S-Corps often allow more flexibility in setting up retirement plans and benefits.

Compliance Responsibilities:

• Payroll Setup: You must set up and run payroll regularly, with a reasonable compensation.

• Corporate Tax Return: You’ll file IRS Form 1120S.

• Maintain Corporate Formalities: Including bylaws, meeting minutes, and accurate financial records.

Running a profitable business can feel overwhelming at times, but incorporating a few manageable steps can make a huge difference. At Misty Newsome CPA, we love using tools like Gusto and Xero to simplify tasks, keep you organized, and ensure you’re compliant while also finding ways to save. Curious about how these tools can help? Check out our YouTube channel for insights and strategies!

When Should You Switch to an S-Corp?

If you’re running a business and finding yourself with a steady net income of over $50,000 each year, it might be time to think about making a smart financial move. Committing to payroll and dealing with those extra tax filings can feel daunting, but trust me, it pays off. Plus, who doesn’t want to boost their take-home pay? If this hits home for you, considering the S-Corp route could be your ticket to saving more and building lasting wealth. It’s all about strategizing for your financial future!

Quick Saving Tip for Your Business:

Every business is different. What saves money for one owner might create unnecessary complexity for another. That’s why we recommend starting with a professional tax assessment before making any major changes. Find more here!

At Misty Newsome CPA, we’ve helped hundreds of small business owners navigate this exact decision. We don’t just file your paperwork — we help you create a formation strategy that supports your goals and saves you money.

Interested in finding out what tax-saving structures might work best for you? Let’s chat! You can easily book a strategy call with our team! This year could be your most profitable one yet with a smart tax strategy and proactive planning. After all, every dollar saved counts!