Choosing the right business structure is one of the most important decisions you'll make as an entrepreneur—and it directly affects your tax liability, personal liability, and growth potential. At Texas Tax Heroes™, we guide business owners through entity formation to ensure you're set up for long-term success and tax efficiency.
Here's a breakdown of the most common business structures and their tax implications.
Best for: Freelancers, solo entrepreneurs, or those just starting out.
Tax Benefits:
Simple setup with minimal paperwork
Income is reported on Schedule C with your personal tax return (Form 1040)
Eligible for many self-employment deductions (home office, mileage, etc.)
Tax Considerations:
Subject to self-employment tax (Social Security + Medicare)
No legal separation between you and the business
🔗 IRS Sole Proprietor Tax Info
Best for: Two or more people starting a business together.
Tax Benefits:
Profits/losses pass through to partners’ individual returns (no corporate tax)
Shared responsibility for startup costs and management
Tax Considerations:
Must file an annual partnership return (Form 1065)
Each partner receives a Schedule K-1 for their share of income
General partners are still subject to self-employment tax
Best for: Small-to-medium businesses seeking liability protection and tax flexibility.
Tax Benefits:
Can be taxed as a sole proprietorship, partnership, or corporation
Default pass-through taxation (no double taxation)
Personal assets are protected from business liabilities
Tax Considerations:
Self-employment taxes still apply unless taxed as an S Corp
Must follow state filing and renewal requirements
Best for: Profitable businesses looking to save on self-employment taxes.
Tax Benefits:
Pass-through taxation (no federal corporate tax)
Owners can pay themselves a reasonable salary, with additional profits treated as distributions (not subject to self-employment tax)
Tax Considerations:
Requires payroll setup and reasonable salary documentation
Must file Form 1120-S and Issue K-1s to shareholders
Limited to 100 shareholders (all must be U.S. citizens/residents)
Best for: Startups planning to scale quickly, seek investors, or reinvest profits.
Tax Benefits:
Lower flat corporate tax rate (21%)
Allows multiple classes of stock and unlimited shareholders
Can offer fringe benefits (health insurance, retirement plans)
Tax Considerations:
Subject to double taxation (profits taxed at the corporate level and again as dividends)
More formal structure and reporting requirements (Form 1120)
At Texas Tax Heroes™, we offer:
Personalized entity selection consultations
Tax planning to reduce liability
Filing and compliance support to help you stay on track
Let our tax and business experts help you choose the best structure for your goals.
📍Visit www.texastaxheroes.com or call 832-613-0619 to get started today.