At Akif CPA, many of our leads come from small business owners trying to figure out the best way to structure their business. One recent inquiry came from a content creator expanding into multiple areas — photography, videography, and merchandise. Their main concern? Taxes.
They had started as a sole proprietorship but wanted to know if forming an LLC or electing S Corporation (S-Corp) status would reduce their tax burden. Like many entrepreneurs, they had read that single-member LLCs are still taxed as pass-through entities, and they weren’t sure whether there was really any benefit to changing structures.
Sole Proprietorship vs. S-Corp
By default, a single-member LLC is considered a disregarded entity by the IRS. That means, while it’s legally separate, the income and expenses flow directly onto the owner’s personal tax return. The problem with this setup is that net profits are subject to:
- Federal income tax
- State income tax (if applicable)
- Self-employment tax at 15.3%
This combination can push total taxes above 30%.
An S-Corp, on the other hand, is also a pass-through entity, but with a key difference: net profits are not subject to self-employment tax. Owners must pay themselves a reasonable salary (which is subject to payroll taxes), but profits beyond that avoid the extra 15.3%. For businesses generating healthy net profits, this can lead to significant savings.
Other Considerations
When deciding on the right structure, we always look at three factors:
- Net profit – Not just revenue, but actual profit after expenses.
- Other sources of income – W2 wages, investments, or other business income can affect your tax bracket.
- Multiple revenue streams – Content creators often sell on different platforms and may run various lines of business. In these cases, using DBAs (Doing Business As) or setting up separate LLCs can help with organization and liability, while still filing a single return if the entities are properly structured.
Tailored Solutions
There’s no one-size-fits-all answer. For some, staying a sole proprietorship is fine; for others, S-Corp status brings real tax advantages. The right decision depends on your income level, growth projections, and long-term goals.
At Akif CPA, we help content creators and small business owners analyze their options and choose the structure that makes the most sense — not just for taxes, but for protecting their business and planning for the future.