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Tax Strategy

LLC vs S-Corp Entity Structure Review

Pick the structure that fits your numbers — not a template you found online.

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The structure you chose at the start is rarely the one that fits today

Most owners pick an entity type once — usually a single-member LLC, filed online in an afternoon — and never revisit it. That's fine until your profit grows. Once a business is consistently netting real money, the wrong structure quietly costs you thousands a year in self-employment tax you didn't have to pay.

An entity structure review looks at where your business actually is now: your net profit, how you pay yourself, your growth plans, and whether you have partners or outside investors on the horizon. Then it answers one practical question — is your current structure still the cheapest legal way to operate, or is it time to elect something different?

LLC, S-Corp, or C-Corp — what actually drives the decision

An LLC is simple and flexible, but by default its profit is all subject to self-employment tax. Once net profit climbs into the five figures, an S-Corp election often saves money: you pay yourself a reasonable salary (subject to payroll taxes) and take the rest as a distribution that isn't. The savings are real, but only if your salary is genuinely reasonable — the IRS scrutinizes owners who pay themselves too little.

A C-Corp rarely makes sense for a typical Bay Area small business because of double taxation, but it can be the right call if you're raising venture capital or planning to retain significant earnings inside the company. The point is that none of this is one-size-fits-all. The right answer depends on your numbers, and it changes as those numbers change.

California-specific costs that the online guides skip

California adds wrinkles that generic advice ignores. Every LLC and corporation pays the $800 minimum franchise tax to the Franchise Tax Board each year, regardless of profit. LLCs above certain revenue thresholds owe an additional gross-receipts fee on top of that. An S-Corp election doesn't escape California either — the state levies a 1.5% tax on S-Corp net income.

These costs don't make any single structure wrong, but they do change the math. A federal-only analysis can point you toward an election that looks great on paper and then gets eaten up by California's add-ons. The review accounts for both layers so the recommendation holds up when you actually file.

What you walk away with

You get a clear recommendation in plain language: keep your current structure, or make a specific election, with the dollar impact spelled out and the filing steps and deadlines laid out. If an S-Corp election makes sense, we cover the reasonable-compensation question directly so you're not guessing — and not exposed.

This is a low-stakes, high-leverage place to start. Getting the structure right once pays off every year afterward.

Frequently Asked Questions

When does an S-Corp election actually start saving me money?
It depends on your net profit and a reasonable salary for your role, but the savings generally start to outweigh the added payroll and filing costs once a business is consistently netting roughly $40,000–$80,000 or more. We run your actual numbers rather than relying on a rule of thumb.
Does electing an S-Corp get me out of California's franchise tax?
No. California still charges the $800 minimum franchise tax and adds a 1.5% tax on S-Corp net income. A good analysis weighs the federal self-employment-tax savings against these California-specific costs.
I already formed an LLC. Is it too late to change?
Not at all. An existing LLC can elect to be taxed as an S-Corp without dissolving and re-forming. There are timing rules for when the election takes effect, which we'll map to your situation.
What is "reasonable compensation" and why does it matter?
If you elect S-Corp status, the IRS requires you to pay yourself a reasonable salary for the work you do before taking tax-advantaged distributions. Paying yourself too little is a common audit trigger. We help you set a defensible number.
Can you handle the filing, or just the advice?
Both. We can give you a recommendation and the steps to file it yourself, or prepare and submit the elections for you. Either way you'll know exactly what's being filed and why.

Ready to talk it through?

No cost, no commitment — just a clear next step for your business.

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