Most small business owners choose their entity structure early, often during the startup phase when the priority is getting the business off the ground. An LLC gets formed, or an S corporation election gets made, and that decision tends to stay in place for years without much reconsideration.
As a business grows, as income changes and as tax law evolves, it’s worth pausing to ask whether the structure that made sense at formation is still the most effective one. Several provisions of the One Big Beautiful Bill Act that took effect in 2026 have shifted the calculation in ways that are relevant to many small business owners, making this a reasonable year to take a fresh look.
Why Structure Deserves Periodic Review
The way a business is structured affects how income is taxed, how profits flow to the owner, whether distributions are subject to self-employment tax and how much flexibility exists for planning around those outcomes. Two businesses with similar revenue can have meaningfully different tax burdens depending on how they are set up, and those differences tend to grow as income increases.
The most common structures for small businesses, including sole proprietorships, single-member LLCs, partnerships and S corporations, each carry distinct tax implications. The right fit depends on current income level, ownership situation and long-term goals, and those factors change over time.
What Changed in 2026
A few OBBBA provisions are worth understanding in the context of entity structure.
The Qualified Business Income deduction, which allows pass-through business owners to deduct up to 20% of qualified business income, is now permanent. The income phase-out ranges have also been expanded, meaning some business owners who were previously limited or excluded from the full deduction may now qualify. If you operate as a sole proprietor, partnership or S corporation and have not revisited your QBI position recently, it is worth reviewing.
For business owners in higher-tax states, the SALT deduction cap has increased from $10,000 to $40,000 for 2026. For some S corporation and partnership owners, a Pass-Through Entity tax election, which allows state income taxes to be paid at the entity level and deducted federally without limitation, may offer meaningful savings that were less advantageous under the previous cap.
For businesses weighing an S corporation election, the potential self-employment tax savings can be significant. That said, the structure comes with administrative requirements and cash flow considerations that are worth working through carefully before making the change.
Questions Worth Reviewing With Your Advisor
A mid-year review of entity structure does not necessarily mean making a change. For many businesses, the current structure will still be the right one. The goal is simply to arrive at that conclusion deliberately rather than by default.
Some useful questions to work through: Has net income grown to a level where a different structure might reduce the tax burden? Has the ownership situation changed? Are there QBI deduction benefits going unclaimed because the structure or income level has not been reviewed against the new thresholds? Are there state tax strategies available that the current structure is not positioned to take advantage of?
Restructuring an established business carries its own tax implications and administrative complexity, so these decisions are generally easier to get right proactively. At Dunn CPA Firm, reviewing entity structure is part of how we approach ongoing planning with clients. If you have not revisited this since the new tax law took effect, it may be a good time to do so.
