Your entity choice quietly determines how much self-employment tax you pay, which deductions you can access, how you are protected, and how painful your eventual exit will be. Yet most owners chose their structure in ten minutes on a formation website — and are still paying for that decision every April.
We design entity structures around the tax code, not templates: analyzing your profit, payroll, state, liability exposure, and goals — then handling the elections and setup so the structure actually delivers its savings.
Entity Analysis & Design
There is no universally 'best' entity — only the best fit for your numbers and goals. We model your specific situation across structures:
- Sole proprietorship vs. LLC vs. S corp vs. C corp — side-by-side tax modeling with your real numbers
- S corp election timing and filing (Form 2553), including late-election relief
- Reasonable compensation studies that document your salary against IRS factors
- Real estate holding structures — why rentals rarely belong in S corps, and what to use instead
- Management company and holding company architectures for multi-entity operators
- California-specific analysis — the $800 franchise tax, S corp 1.5% tax, and LLC gross receipts fees
S-Corp Elections Done Right
The S corporation election (Form 2553) can save five figures annually — but it fails without proper execution. The election has strict deadlines (generally 2 months and 15 days into the tax year), requires payroll to be genuinely run, and demands a defensible salary. Take too little salary and the IRS reclassifies distributions; take too much and you erase the savings.
We handle the complete lifecycle: eligibility analysis, election filing (including late-election relief under Rev. Proc. 2013-30 when you qualify), payroll setup guidance, and annual reasonable-compensation reviews.
Structures for Real Estate Investors
Real estate demands different architecture than operating businesses. Appreciating rentals generally should not sit inside S corporations — distributions of appreciated property trigger gain, and basis limitations restrict refinance-and-distribute strategies. Meanwhile, active income like flips and wholesale fees often does belong in an S corp to cut self-employment tax.
The classic pattern we implement: LLCs holding rentals (taxed as partnerships or disregarded), an S corp management or flipping entity for active income, and clean intercompany agreements that keep both liability protection and tax benefits intact.
Entity Structuring FAQs
Should my business be an LLC or an S corp?
This is a false choice — an LLC is a legal entity, while S corp is a tax classification. Your LLC can elect S corp taxation. The real question is whether S corp taxation saves you money, which typically starts around $50K–$60K in net profit and depends on reasonable salary, payroll costs, and your state's fees.
I missed the S corp election deadline. Am I stuck?
Usually not. The IRS grants late-election relief under Rev. Proc. 2013-30 when you intended to elect, have reasonable cause, and have acted consistently with S corp status. We prepare these relief requests routinely and can often make the election effective retroactively to the start of the year.
Why shouldn't I put my rental properties in an S corporation?
Because getting appreciated property out of an S corp is a taxable event, basis rules limit distributing refinance proceeds, and rentals do not pay self-employment tax anyway — so there are no SE savings to gain. Partnerships and disregarded LLCs preserve flexibility, basis step-ups, and 1031 options.
What is 'reasonable compensation' and why does it matter?
S corp owners must pay themselves a fair-market salary before taking distributions. The IRS looks at factors like your duties, hours, experience, and comparable wages. Too low invites reclassification, back payroll taxes, and penalties. We document your number using market data so it holds up.
Go Deeper: Related Guides
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Book a free consultation with Samera Harvey, EA — get straight answers and flat-fee pricing before you commit to anything.