If your business is taxed as an S Corp, LLC, or C Corp — or you’re still operating as a sole proprietor — the Big Beautiful Bill just rewrote the rules of the game.
For founders earning multiple six or seven figures, entity structure is no longer a “set-it-and-forget-it” decision.
It’s a tax lever — and the IRS just made it clear they’re watching how you use it.
At Washington & Co. Inc — Strategic Tax & Advisory, we’re guiding high-income entrepreneurs through the BBB-driven shifts in entity selection, compensation, and compliance.
This guide will show you what’s changed — and what moves to make before year-end.
Why Entity Structure Matters More After the BBB
The Big Beautiful Bill put a spotlight on:
- Owner compensation requirements
- Disallowed deductions for loosely structured entities
- Cross-entity reporting and transparency for audit enforcement
- Limitations on certain fringe benefits and reimbursements
- Tighter documentation standards for multi-entity groups
The takeaway? The IRS isn’t just looking at what you deduct. They’re looking at how your business is organized.
What’s Changing for S Corps in 2025
S Corporations remain a strong choice for reducing self-employment tax — but the BBB created new clarity (and pressure) around “reasonable compensation” for owners.
Key Updates:
- The IRS is expected to expand its audit focus on S Corps reporting low W-2 wages
- Fringe benefits must now be better substantiated — including health, vehicle, and home office reimbursements
- Inconsistent K-1 and W-2 distributions across owners may trigger deeper review
- You may need 3rd-party documentation for your salary, not just a gut check
Action: If you’re taking less than $60K–$100K in W-2 wages on a 7-figure profit, you’re likely undercompensating yourself — and exposed.
What LLC Owners Need to Know Now
LLCs are flexible — but under the BBB, that flexibility now comes with more scrutiny.
Common risks post-BBB:
- Failing to make an S Corp election once income surpasses ~$100K/year
- Taking distributions without reasonable salary (if taxed as S Corp)
- Using LLCs as “catch-all” entities without clear structure or segregation of income
- Claiming deductions without an accountable plan or reimbursement policy
Solution: LLCs should be strategically layered or converted based on revenue, asset type, and growth plans.
C Corporations: Still Rare — But Powerful When Used Right
The BBB didn’t directly change C Corp rules — but their flat 21% corporate tax rate and access to QSBS (Section 1202) continue to make them attractive for:
- High-growth businesses planning to raise capital
- Companies reinvesting profits vs distributing
- Founders who want to layer in fringe benefits and retirement plans
But beware: C Corps are still subject to double taxation unless carefully managed.
Multi-Entity Structuring: More Valuable Than Ever
The BBB’s increased enforcement makes entity separation a protection strategy, not just a tax tool.
We often recommend:
- Operating Company – Runs core business
- Holding Company – Owns IP, real estate, trademarks
- Investment Arm – Manages cash flow, lending, or passive income
- Family Management Co – Hires family members, handles admin
Benefits:
- Income shifting opportunities
- Liability isolation
- Easier compensation structuring
- Legacy and exit planning flexibility
Just know: documentation and inter-company agreements matter now more than ever.
Real Example: $19K Saved with Mid-Year Structuring
One client — a marketing consultant earning $450K as a sole proprietor — made the S Corp election in July after a strategy session.
Here’s what we implemented:
- Reasonable comp of $110K via W-2
- The rest taken as distributions
- Set up Accountable Plan for home office and phone
- Created a Solo 401(k) and maxed it before year-end
Result: $19,400 in tax savings in the first year, with better audit protection and wealth-building structure.
Entity Strategy Action Plan
- Run your 2025 YTD income and profit
- Review your W-2 salary vs net income
- If you’re an LLC, check if S Corp election makes sense
- Clean up documentation for reimbursements and distributions
- Consider multi-entity layering if assets, real estate, or IP are involved
- File Form 2553 or restructure before year-end if needed
Book Your Entity Strategy Session
Your entity structure is either saving you thousands — or costing you.
The BBB made that gap even wider. Let’s close it, in your favor.
Book your Entity Optimization Call with Washington & Co. Inc — Strategic Tax & Advisory.