Many business owners reach a point where they start asking bigger questions about their structure. The business is making money, the workload is steady, and taxes feel higher every year. At that stage, the way your business is set up for tax purposes can matter just as much as how much revenue you bring in.
For 2026, this conversation is especially important. Several federal tax rules that affect small businesses are now permanent, while others continue to shape how income, payroll, and distributions are taxed. Choosing between an LLC, S-Corp, and C-Corp is not just a legal decision. It is a long-term tax planning decision that can impact cash flow, compliance, and how much of your profit you actually keep.
This article outlines how each structure works, what has changed for 2026, and how small business owners in Fort Worth can think about making the right choice.
Before comparing tax outcomes, it helps to clarify what each structure actually is and how it is taxed at a high level.
An LLC, or limited liability company, is a legal structure that provides liability protection. From a tax perspective, a single-member LLC is taxed by default as a sole proprietorship, and a multi-member LLC is taxed as a partnership. In both cases, profits pass through to the owner’s personal tax return.
An S-Corporation is not a legal structure on its own. It is a tax election that an LLC or corporation can make. An S-Corp also passes profits through to the owner’s personal return, but it allows income to be split between wages and distributions.
A C-Corporation is a separate taxpaying entity. The business pays corporate income tax on its profits, and owners pay personal tax again if profits are distributed as dividends.
Each option comes with different tax rules, compliance requirements, and planning opportunities.
For many small businesses, the LLC is the starting point. It is simple to form, flexible, and works well in the early stages.
In 2026, the core tax treatment of LLCs remains the same. All net profit passes through to the owner and is subject to federal income tax. In addition, the entire net profit is subject to self-employment tax, which includes Social Security and Medicare.
This is often the biggest downside for growing businesses. As profit increases, self-employment tax increases dollar for dollar. There is no way to separate wages from profit under the default LLC tax treatment.
The upside is simplicity. There is no payroll requirement for the owner, fewer compliance costs, and less administrative work. For businesses with modest or inconsistent profits, this tradeoff can still make sense.
An S-Corporation election is often the first major tax planning step for profitable small businesses.
With an S-Corp, the owner is required to pay themselves a reasonable salary. That salary is subject to payroll taxes, just like any other employee. Any remaining profit can be taken as a distribution, which is not subject to self-employment tax but still subject to income tax.
This split is where tax savings can occur. In 2026, payroll tax rates remain the same, but the ability to limit payroll taxes to only the salary portion can significantly reduce total tax liability for owners with steady profits.
The tradeoff is complexity. An S-Corp requires payroll, quarterly payroll filings, a separate business tax return, and more careful bookkeeping. There is also less flexibility if income fluctuates widely.
For many trades, real estate professionals, and insurance agents earning consistent profits above a certain level, the tax savings often outweigh the added cost and complexity.
C-Corporations are taxed very differently and are less common for local service businesses, but they still deserve consideration in certain cases.
In 2026, the federal corporate tax rate remains a flat 21%. The business pays tax on its profits, and owners pay tax again when profits are distributed as dividends.
This double taxation is usually the reason small business owners avoid C-Corps. However, C-Corps can make sense when profits are being reinvested rather than distributed, or when the long-term plan includes outside investors or a future sale under specific conditions.
For most closely held service businesses that rely on distributing profit to owners, a C-Corp often creates more tax friction than benefit.
One of the most important developments for 2026 is stability. Several pass-through tax rules that were once temporary are now permanent, which allows for longer-term planning.
The Qualified Business Income (QBI) deduction, which allows eligible pass-through owners to deduct up to 20% of qualified income, remains available. This continues to benefit LLCs and S-Corps, subject to income limits and business type rules.
Payroll tax rules for S-Corps are unchanged, which means reasonable salary planning remains a key factor. The IRS continues to scrutinize salary levels, making proper documentation and benchmarking important.
For C-Corps, the corporate tax rate remains steady, but the challenge of double taxation still exists for businesses distributing profits.
The takeaway for 2026 is that entity choice is less about reacting to new rules and more about using stable rules more intentionally.
Consider a business owner earning $120,000 in net profit.
Under a default LLC structure, the full $120,000 is subject to income tax and self-employment tax.
Under an S-Corp, the owner might pay themselves a $70,000 salary, which is subject to payroll taxes, and take the remaining $50,000 as a distribution, which is not. The result is often meaningful tax savings, even after accounting for payroll and compliance costs.
Now consider a business that earns $300,000 but reinvests most of that income into growth and does not need to distribute profits. In certain cases, a C-Corp may produce a lower current tax bill, though this comes with long-term tradeoffs that must be evaluated carefully.
These decisions are rarely about maximizing tax savings in a single year. They are about aligning tax structure with how the business actually operates.
The best entity choice depends on more than income alone.
Start by projecting your expected profit for the year. Then consider how consistent that income is and how much of it you need to take out of the business.
Next, think about administrative capacity. Payroll, bookkeeping, and compliance are manageable, but they do require systems and discipline.
Finally, consider long-term plans. Growth, hiring, ownership changes, and exit strategies all influence whether simplicity or structure is more valuable.
This is where tax projections become critical. Comparing options side by side with real numbers often brings clarity quickly.
There is no universally best entity type. The right choice is the one that supports your cash flow, keeps compliance manageable, and aligns with your goals.
For many small businesses, the decision evolves over time. An LLC may be the right choice early on. An S-Corp may make sense as profits grow. In fewer cases, a C-Corp becomes relevant as strategy changes.
At Adam Traywick, CPA, we help Fort Worth business owners make these decisions with clear numbers and practical guidance. Your entity choice should support the life you want the business to fund.
If you are unsure whether your current structure still fits in 2026, book a call with us today.
We’d love to help you uncover opportunities.
Until next time!
