Can you help me figure out if I should be an LLC, S-corp, or stay a sole proprietor?
Yes, and this is one of the most common conversations we have with service business owners. The answer depends on how much you’re making and how much complexity you’re willing to take on.
First, a clarification that trips people up: LLC is a legal structure, while S-corp is a tax election. These aren’t mutually exclusive. You can form an LLC and then elect to have it taxed as an S-corp. So the real question is usually about how you want to be taxed, not just what entity to form.
If you’re a sole proprietor or a single-member LLC that hasn’t made any special election, your business income flows onto your personal tax return through Schedule C. You pay income tax on the profit, plus self-employment tax of 15.3% on the first chunk (the Social Security portion phases out at higher income levels). This is the simplest setup. One tax return, no payroll to run, no separate business return to file. For many owners, especially in the early years, this is the right answer.
An S-corp election can reduce self-employment tax once your profit is high enough. Instead of paying self-employment tax on all the profit, you pay yourself a reasonable salary (which gets payroll taxes) and take the rest as a distribution (which doesn’t). The savings come from that distribution portion avoiding the 15.3%. But this adds real complexity: you have to run payroll, pay yourself a reasonable wage that passes IRS scrutiny, and file a separate S-corp return (Form 1120-S) every year.
The general rule of thumb is that the S-corp election starts making sense somewhere around $50,000 to $60,000 or more in annual profit, but that number varies based on your situation. Below that, the payroll costs, additional return, and compliance burden often eat up any tax savings.
Here’s what the firm does and doesn’t do with this. Simona is a CPA and Enrolled Agent, so she can walk you through the tax strategy and help you figure out which structure makes sense based on your actual numbers. The firm handles your bookkeeping, runs payroll if you elect S-corp, and prepares your personal tax return. What we don’t do is prepare the separate S-corp return (Form 1120-S) or partnership return (Form 1065). Those require a separate preparer. We also don’t form the legal entity itself. That’s a legal step you’d do with an attorney or a formation service.
The short version: if you’re trying to figure out the right structure, the firm can help you think through the trade-offs and model out what makes sense. If you’re looking for small business bookkeeping services that connect to real tax planning, that’s exactly what we do. Reach out and we can look at your specific situation together.
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More Questions
How much does bookkeeping cost?
Monthly bookkeeping starts at $199 a month, with add-ons like bill pay and invoicing starting at $99 each. Pricing depends on your transaction volume, number of accounts, and whether you need payroll or tax work. Catch-up bookkeeping for past months is scoped separately.
Read answerCan I pay my cleaners as 1099 contractors in Massachusetts?
In most cases, no. Massachusetts uses the ABC test for worker classification, and cleaners performing a cleaning company's core work almost always fail Prong B, which requires the work to be outside the company's usual business.
Read answerAs a consultant, do I qualify for the QBI deduction?
Consultants can qualify for the 20 percent QBI deduction, but income limits apply. Below roughly $200,000 single or $400,000 married filing jointly, you get the full deduction. Above that range, it phases out and eventually disappears.
Read answerMy books are a mess. Can you fix them, and what does that look like?
Yes, messy books can be fixed and it's more common than you think. The process involves reviewing your current state, gathering statements, reconciling accounts, and correcting miscategorized transactions to deliver accurate, current books.
Read answerWhat do you handle when you run my payroll?
Full-service payroll means we calculate pay, withhold and deposit federal and state taxes, pay your employees, file the quarterly and annual returns, and produce W-2s at year end. You approve hours and we handle everything else.
Read answerWhat accounting software do you use?
We use QuickBooks Online for all of our bookkeeping clients. It's cloud-based with automatic bank feeds and integrates with payroll and other apps. If you're on a different tool or spreadsheets, we handle the migration.
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