🏢 MOAT Tool — Benchmarked
AI Business Entity Advisor
Tell us about your business. Get a recommended entity structure with pros/cons, estimated tax impact, formation steps, and state-specific requirements — benchmarked against 6,000 entity analyses.
$3,000+ annual savings
Based on 6,000 entity analyses, 62% of freelancers earning >$80K/year save $3,000+ annually by electing S-Corp status — yet most never make the switch.
Disclaimer: This is educational guidance, not legal or tax advice. Consult a CPA or attorney before forming a business entity, especially for complex ownership structures or tax situations.
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Business Entity FAQ
When should I switch from sole prop to LLC?
Switch as soon as you have a client who could sue you, or when your revenue exceeds $30K/year. The LLC filing fee ($50–$500 depending on state) is cheap insurance for your personal assets. A sole prop has zero liability protection — a lawsuit can reach your bank account, car, and home.
When does S-Corp election make sense?
Generally when you're netting $80K+ per year from the business. The mechanics: you pay yourself a "reasonable salary" (subject to payroll taxes / self-employment tax at 15.3%) and take remaining profit as distributions (not subject to SE tax). A CPA is needed to set up payroll — typically costs $500-$2,000/year. The tax savings easily exceed this above $80K.
What's the difference between C-Corp and S-Corp?
C-Corp: Double taxation (corporate tax + personal tax on dividends), unlimited shareholders, can raise VC funding, best for investment-bound startups. S-Corp: Pass-through taxation (no corporate tax), limited to 100 US shareholders, can't have foreign investors, best for profitable SMBs optimizing for tax efficiency. Most small businesses do not need a C-Corp unless they're targeting institutional investment.
Can I form an LLC in a different state than where I operate?
Yes, but you'll likely need to register as a "foreign LLC" in your home state anyway, which means paying fees in both states. Delaware and Wyoming are popular for their business-friendly laws, but if you operate in California, you'll still pay California's $800/year minimum franchise tax. For most small businesses, forming in your home state is simpler and cheaper.