5 Tax Savings Strategies Most Business Owners Don’t Know About

Day 1: Structuring Your Business for Maximum Tax Savings

Let’s start with an uncomfortable truth: Most business owners are leaving money on the table when it comes to taxes. And by “money,” I mean big, fat stacks of it.

Why? Because they aren’t using the right business structure.

Sure, most people know the basics:

• Sole proprietorships = simple but high tax liability

• LLCs = flexible but need tax elections for real savings

• S-Corps = popular but not always the best fit

• C-Corps = powerful but double taxation is real

But did you know that choosing (or electing) the wrong structure could be costing you thousands in unnecessary taxes? Let’s break it down.

Sole Proprietorships and LLCs: The “Oops, I’m Paying Too Much” Trap

If you’re a sole proprietor or a single-member LLC, the IRS taxes all of your net income as self-employment income. That means you’re paying:

• Income tax (based on your tax bracket)

• Self-employment tax (15.3% on the first $168,600 of income in 2024)

This is where most business owners get burned. You don’t just pay taxes on your profits—you pay self-employment tax on every dollar of net earnings.

A better option? Electing to be taxed as an S-Corp under IRC § 1362.

S-Corporations: The Sweet Spot (For Many)

S-Corporations avoid self-employment tax on distributions. Instead, owners take a “reasonable salary” (subject to payroll taxes), and the remaining profits aren’t hit with self-employment tax.

Here’s an example:

• Sole proprietor makes $150,000 → Pays $22,950 in self-employment taxes

• S-Corp owner makes $150,000, takes a $60,000 salary → Pays self-employment taxes only on $60,000

That’s over $13,000 saved just by structuring things properly.

But don’t get too excited—if you try to pay yourself an unreasonably low salary, the IRS will notice (and they don’t have a sense of humor about this).

C-Corporations: The Overlooked Tax Strategy

Many small business owners avoid C-Corps because of double taxation (corporate profits are taxed, and then shareholders pay tax on dividends).

But if you’re planning to reinvest profits, a C-Corp could make sense. Why?

• Flat 21% corporate tax rate (IRC § 11)

• No self-employment taxes on dividends

• More deductions available (health benefits, business expenses, etc.)

For businesses that don’t need to pull out all profits, a C-Corp could be a strategic move. Plus, under IRC § 1202, some qualified small business stock (QSBS) sales can be 100% tax-free if held for five years. That’s a huge win for startups and long-term investors.

Choosing the Right Structure for You

There’s no “one-size-fits-all” when it comes to business structures. But here’s a quick guide:

✅ Side hustler or freelancer? LLC with an S-Corp election once you’re making ~$50K+ profit.

✅ Growing business reinvesting profits? Consider a C-Corp.

✅ Keeping things simple? An LLC might work—but beware of self-employment taxes.

Tomorrow’s Topic: Hiring Family Members (Without Raising IRS Eyebrows)

Want to legally put your kids or spouse on payroll while saving on taxes? It’s possible—but the IRS loves auditing people who try. Tomorrow, we’ll cover how to do it right and avoid penalties.

Have questions on structuring your business? Drop them in the comments or shoot me a message!

I’ll get started on Day 2: Hiring Family Members next! Stay tuned.

This content is for informational purposes only and should not be considered tax, legal, or financial advice.