How to avoid overpaying taxes in the USA.

February 23, 2026

Have you opened a business in the US and are sure you did everything correctly?

The IRS can classify your company in different ways, and this determines how much you pay in taxes.

In this video, you’ll learn:

• the difference between a legal structure and a tax structure

• what four tax regimes exist in the US

• why a sole proprietorship is often the most expensive option

• when a partnership makes sense

• how an S-Corporation can reduce self-employment taxes

• when a C-Corporation is needed This practical guide for business owners in Florida, New York, and other US states.

If you’re looking for: how to choose a tax regime in the US how to avoid paying unnecessary taxes in the US LLC taxes self-employment tax rate of 15.3% S-Corp vs. LLC business registration in Florida — this video will give you a structured understanding.

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Why Your LLC Might Be a Tax Trap

If you opened an LLC in Florida, Wyoming, New York, or any other state, it’s very easy to assume that you’ve already chosen your tax structure.

But that’s not true.

In reality, many business owners are overpaying taxes right now simply because they don’t understand the difference between a company’s legal structure and its tax classification. And often, this costs thousands of dollars per year — completely legally avoidable.

Let’s break this down in simple terms.

The Main Myth: Legal Structure ≠ Tax Structure

When you register a company with a state, you create a legal entity.

This gives you:

Personal liability protection
The right to operate under a business name
The ability to open a business bank account
A formal ownership structure

But the state only determines the legal shell — LLC, Corporation, DBA.

The IRS determines how your income is taxed.

These are two completely different systems.

For example, the same LLC can be taxed as:

Sole Proprietorship
Partnership
S Corporation

And in each case, the total tax amount can be significantly different.

The IRS recognizes only four tax classifications:

Sole Proprietorship
Partnership
S Corporation
C Corporation

There are no other options.

Sole Proprietorship — Simple, but Expensive

If you have a single-member LLC or operate as an individual, the IRS automatically treats you as a Sole Proprietor by default.

What does that mean?

Your business income flows directly into your personal tax return (Form 1040, Schedule C)
The company does not file a separate tax return
All profit is considered your personal income

The problem is:

You pay federal income tax (up to 37%)
Plus self-employment tax (approximately 15%)

All profits are fully taxable.

This structure may make sense if:

Your income is unstable
You are testing a new idea
Your net profit is under $50,000 per year

If your profit consistently exceeds $50,000, you may be significantly overpaying in taxes.

Partnership — A Common Trap for Family Businesses

Many entrepreneurs add a spouse or family member to their business and automatically become a Partnership.

What does this mean?

The company must file Form 1065
Each partner receives a Schedule K-1
Income is distributed among partners

The reporting becomes more complex and usually requires a professional accountant.

But the main issue remains:

Partners still pay self-employment tax (around 15%).

This structure can make sense:

If there are two or more real owners
For real estate investments
When allocating losses among partners

But for many small service businesses, it may not be the most tax-efficient option.

S Corporation — The “Sweet Spot” for Small Businesses

S Corporation is one of the most popular tax structures for small and medium-sized businesses.

Why?

The company files Form 1120S.
Owners receive Schedule K-1.

The main advantage is the ability to split income into:

Salary
Profit distribution

Salary is subject to payroll taxes (around 15%),
but distributed profit is not.

This separation can save business owners thousands of dollars per year.

In addition, many businesses qualify for the Qualified Business Income (QBI) deduction — up to 20% of profits.

Important Requirements:

The owner must take a “reasonable salary”
Payroll must be properly set up
Form 1120S must be filed annually
All shareholders must be U.S. residents or citizens

S Corporation is usually ideal if:

Net profit is $50,000+
The business is stable
The owner is willing to maintain compliance

C Corporation — Designed for Growth

C Corporation is typically used by larger companies.

Key features:

The company pays corporate tax (21%)
Shareholders pay tax again when dividends are distributed

This is known as double taxation.

For many small businesses, this structure is not optimal.

However, it may be appropriate if:

There are foreign investors
You plan to raise capital
Profits will be reinvested
A strong corporate structure is required

Which Structure Should You Choose?

Remember this simple analogy:

The legal structure is the car.
The tax classification is the lane you choose to drive in.

The lane determines how much tax you will pay.

For most entrepreneurs, taxes are the largest expense category. Choosing the right tax classification directly impacts business profitability.

Not Sure How Your Business Is Taxed?

If you have already opened an LLC or Corporation and you’re unsure:

Whether your current structure is optimal
Whether you are overpaying taxes
Whether switching to S Corporation would save money

We can:

Calculate your tax liability under each structure
Estimate potential savings
Properly file the transition
Provide full accounting support

Learn more about individual tax preparation

Contact us

on WhatsApp: 📲 +1 (954) 651-7394 Or submit a request on our website: 🌐 strandtaxcorp.com

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