Articles

A C-corporation pays a flat 21% federal tax on profits, regardless of income level. For some owners, that beats the individual brackets they'd pay through an S-corp or LLC, especially when retaining earnings for reinvestment, planning a future sale (QSBS §1202 exclusion up to $15M), or running an SSTB above the QBI phaseout. The right strategy is often layering a C-corp onto an existing S-corp, not replacing it.

The five most common S-corp reasonable compensation mistakes cost owners more than they save. Taking too low a salary triggers IRS audits (Watson v. Commissioner cost a CPA tens of thousands in back FICA), caps your Solo 401(k) and defined-benefit contribution room permanently, and can cut your QBI deduction in half. Document a methodology using the IRS 9-factor framework and review it annually.

Choosing a business entity is not a one-time decision. It is an ongoing architectural choice that should be revisited every time your profit jumps materially. The structure that protected you at $100,000 is actively working against you at $500,000. We walk through the full decision framework, including when a C-Corporation alongside your S-Corporation unlocks savings that a pass-through structure can never achieve.

Everyone has heard the rule of thumb. Elect S-Corporation status once your profit hits a certain number. The problem is nobody can agree on what that number is, and the IRS does not care about your rule of thumb. We break down how the S-Corporation election actually works, why it saves taxes, when it does not, and what a real optimized strategy looks like using two real client tax plans with real numbers.