Choosing the right business structure is a million-dollar question. With the passage of the One Big Beautiful Bill (OBBBA), many core tax provisions that were set to expire have been made permanent or expanded. Whether you are an LLC, a sole proprietorship, or an employee looking to launch a startup, understanding the S Corp structure is essential for maximizing your 2026 tax savings.
Below, we break down the 6 most common myths and the current facts.
Myth 1: S Corps are the only way to get the 20% QBI deduction.
The Fact: While an S Corp can take the 20% Qualified Business Income (QBI) deduction, so can LLCs, sole proprietorships, and partnerships. Under the OBBBA, this 20% deduction is now permanent. Additionally, starting in 2026, there is a new minimum $400 QBI deduction for small businesses with at least $1,000 of qualified income, even if they don’t meet previous complex wage requirements.
Myth 2: I can pay myself a tiny salary to avoid all FICA taxes.
The Fact: The IRS remains aggressive about ensuring S Corp owners pay themselves a “reasonable salary.” If you earn $100,000 in profit but only pay yourself a $10,000 salary to avoid taxes on the other $90,000, you are inviting an audit.
Reasonable Salary Tip: A “reasonable” salary is generally what you would have to pay someone else to do your job. For 2026, we look at updated market data from sources like Glassdoor or the Bureau of Labor Statistics to justify your specific salary.
Myth 3: FICA taxes aren’t that significant for my bottom line.
The Fact: FICA (Social Security and Medicare) is one of the largest tax burdens for the self-employed. In 2026, the Social Security wage base has increased to $184,500.
- In an LLC/Sole Prop: You pay the full 15.3% self-employment tax on all profits up to that $184,500 limit.
- In an S Corp: You only pay that 15.3% on your salary. The remaining profit (dividends) is exempt from FICA.
2026 Tax Savings Comparison ($100,000 Total Income):
| Structure | Salary | Dividend | FICA Tax Owed (approx.) |
| LLC / Sole Prop | $100,000 | $0 | $15,300 |
| S Corp | $60,000 | $40,000 | $9,180 |
| Potential S Corp Savings: $6,120 | |||
Myth 4: Running an S Corp is just as easy as an LLC.
The Fact: S Corps have much stricter administrative requirements. You must maintain corporate bylaws, hold (and document) annual shareholder meetings, and file a separate corporate tax return (Form 1120-S).
If you find the paperwork overwhelming, the tax savings may not be worth the “administrative headache” of self-meetings and formal resolutions.
Myth 5: Accountants only suggest S Corps to charge higher fees.
The Fact: While S Corp accounting is more complex (and thus more expensive), a reputable CPA only recommends it if the tax savings far outweigh the additional fees. In 2026, many states have also expanded Pass-through Entity Tax (PTET) elections. This allows S Corps to pay state taxes at the entity level, effectively bypassing the $10,000 SALT cap on your federal return—a massive benefit not available to basic sole proprietorships.
Myth 6: There aren’t any “hidden” perks to the S Corp structure.
The Fact: S Corps offer unique ways to handle benefits. For example, the business can pay for your health insurance. While this is reported on your W-2, it is often exempt from Social Security and Medicare taxes and remains fully deductible for the corporation. Under the OBBBA, S Corps also now have expanded access to the Employer-Provided Childcare Credit, which has been increased to a $500,000 annual cap for small businesses providing or subsidizing care for their employees (including the owner).
Should You Make the Switch in 2026?
The OBBBA has made the 2026 tax landscape more predictable, but every business is unique. You can search “S Corp vs LLC” all day, but an algorithm can’t see your long-term growth plans or your specific state’s PTET rules.
Next Step: Call our office for a “Business Entity Health Check.” We’ll run your actual numbers through our 2026 tax models to see if an S Corp conversion will actually put more money in your pocket.
