S-CORP, LLC, or C-CORP What Saves Me on Taxes?

Picking the right entity can mean big tax savings. If you're a business owner, here's what you need to know to keep more money in your pocket.

Subscribe for more tax and business tips!

And remember...the #IRSSUCKS

John Briggs | Tax Genius
info@incitetax.com
Visit our website @ Incite Tax

Schedule A Call

Follow us on…
Facebook
LinkedIn
Instagram
YouTube

Chapters

• 0:00 What’s the Best Entity for Tax Savings?
• 0:27 Why Sole Proprietor Is the Worst Structure
• 0:58 When the S Corp Starts to Make Sense
• 1:54 Why an LLC Alone Isn’t Enough
• 2:10 Filing Form 2553 to Elect S Corp Tax Status
• 2:19 Final Thoughts

Transcript

What is the best entity to use for saving on taxes?

So, you have an LLC, there's a partnership, an S corp, and a C corp. Those are all different entities. We've done videos in the past, so feel free to check those out, especially the one on LLCs and some of the complications that come with them. An LLC can actually be taxed like many of the other entities—it just depends on the situation.

I can't tell you what the best entity is for tax savings without knowing your specific situation. But I can tell you what the worst situation is: being a sole proprietor.

This is where you operate under your Social Security number. You pay income tax on the net income and then also pay self-employment tax—15.3%—on top of the income tax. So, someone who makes $30,000 and is in a low tax bracket could still end up paying around 30% in taxes just because they have a really bad tax structure.

While I can't say what the best option is for you without more info, I can tell you that many clients who have a service-based business—whether they're providing a service or selling products—often benefit from using an S corporation. Most of our clients have an S corp in their structure somewhere.

Here's why: Yes, you still pay income tax on your net income, just like a sole proprietor. But you don’t pay self-employment tax on that net income. Because of this, the IRS says, “If you work in your business as the owner of an S corp, you need to pay yourself a wage.” That’s fine. You issue yourself a W-2, and you do pay payroll tax on that wage. And since you're the owner, payroll tax is essentially the same as self-employment tax.

But the key here is: you only pay that payroll tax on your W-2 wage—not your full net income. The result? Tax savings. Your W-2 wage will typically be less than your net income, so you're taxed less overall. That’s why the S corp is usually a much better tax structure for service-based businesses or those selling products.

As mentioned, being a sole proprietor is usually the worst option. And just forming an LLC by itself doesn’t guarantee tax savings. You need the right advice and need to structure your LLC properly. That means filing and electing the right tax status so that you're minimizing taxes the right way.

With an S corp, you have to tell the IRS that you want your business to be taxed that way. You do that by filing Form 2553, which tells the IRS, “Hey, treat me like an S corp.”

So, what's the best entity for tax savings? It depends. S corps work really well for a lot of people. But again, it’s important to get advice for your specific situation.

Feel free to reach out to us. Let us take a look at everything. We can help you figure out whether a different entity structure would save you money. This is often the lowest hanging fruit for tax savings. Why overpay in taxes when simply changing your entity could reduce your bill?

But if you don’t know, you don’t know. So reach out to us—we’re here to help.

And don’t forget to like, subscribe, and remember:
 The IRS does not like you. They’re not your friend. We are.