Choosing the Right Business Structure for Tax Efficiency

by | Apr 26, 2025 | taxes, Tax Planning, tax strategies

business advice service by estess cpas

Why Your Business Structure Matters More Than You Think

Starting a business comes with a checklist: register your name, open a bank account, build your website. But one decision often gets rushed—or worse, ignored entirely: choosing the right business structure.

The structure you choose isn’t just paperwork. It affects how much tax you pay, your personal liability, and how your business grows over time. At Estess CPA, we help business owners across Mississippi and Louisiana make smart choices about their entity type—so they can focus on growth while keeping taxes and risks in check.

1. The Most Common Business Structures (And How They Impact Taxes)

Not all business structures are created equal. Here’s a breakdown of the most common options and why your choice matters:

1.1 Sole Proprietorship

Best for: Solo entrepreneurs, freelancers, side gigs

Tax impact: Business income is reported directly on your personal tax return (Schedule C).

Liability: No legal separation between you and your business—you’re personally responsible for any debts or lawsuits.

Good to know: Simple to start, but offers no protection for personal assets.

1.2 Limited Liability Company (LLC)

Best for: Small business owners wanting flexibility and legal protection

Tax impact: Income can be taxed as a sole proprietorship, partnership, or S-Corp (depending on your election).

Liability: Offers personal asset protection—your house, car, and savings stay safe from business liabilities.

Bonus: Easy to set up, flexible tax treatment, and a popular choice for small businesses.

1.3 S Corporation (S-Corp)

Best for: Growing businesses looking to reduce self-employment taxes

Tax impact: Allows you to take part of your income as a distribution (which isn’t subject to self-employment tax) while still drawing a reasonable salary.

Liability: Like an LLC, it protects personal assets.

Tip: Not everyone qualifies—there are limits on the number of shareholders and stock classes.

1.4 C Corporation (C-Corp)

Best for: Larger companies, those seeking outside investors, or planning to go public

Tax impact: The business pays corporate income tax, and shareholders pay taxes on dividends (this is known as “double taxation”).

Liability: Strong personal asset protection.

Smart move: Some companies benefit from corporate tax rates depending on profits and growth plans.

2. How the Wrong Structure Could Be Costing You

Here’s where we often see business owners run into problems:

  1. Overpaying self-employment taxes as a sole proprietor when an S-Corp could reduce their burden

  2. Missing out on deductions or tax credits due to improper classification

  3. Failing to separate personal and business liabilities, putting personal assets at risk

Choosing the right structure helps you avoid tax-time surprises and positions your business for smoother, smarter growth.

3. When Should You Reconsider Your Business Structure?

Your business isn’t static—and your structure shouldn’t be either. Key moments when it’s smart to revisit your setup include:

  1. You’re adding employees

  2. Your profits have significantly increased

  3. You’re bringing on investors or partners

  4. You’re expanding into new states or regions

4. Real Example: Why One Client Switched from Sole Proprietor to S-Corp

One of our clients at Estess CPA started as a sole proprietor consulting part-time. As her business grew, so did her self-employment tax bill. After a review of her situation, we recommended electing S-Corp status through her LLC.

The result? She saved thousands in self-employment taxes the very next year—while maintaining legal protection for her personal assets.

5. Why Working with a CPA Beats DIY Entity Setup

Yes, you can file LLC paperwork online—but that doesn’t mean it’s the best fit for your tax situation. Here’s why working with a CPA makes a difference:

  1. We analyze your full financial picture—not just the paperwork.

  2. We align your structure with your growth goals and risk tolerance.

  3. We help you avoid IRS red flags and audit triggers.

  4. We keep you compliant with both state and federal regulations.

Entity choice affects far more than just your first year of business. Getting it right from the start saves time, money, and stress.

6. Ready to Choose the Right Business Structure?

Don’t let the wrong choice hold your business back—or cost you more in taxes than you need to pay. Whether you’re launching a startup, growing an existing company, or just unsure if your current setup still makes sense, Estess CPA is here to guide you.

Let’s talk about how to build your business the smart way.

Contact Estess CPA

📞 Belle Chasse Office: (504) 433-5122
📞 Luling Office: (985) 785-1470
📧 Email: [email protected]
🌐 Website: www.estesscpa.com