Entity Setup
Entity Setup: Choosing the Right U.S. Business Structure in Light of the One, Big, Beautiful Bill
The One, Big, Beautiful Bill (OBBB) has introduced major shifts affecting business entity tax treatment—this article guides entrepreneurs through entity selection, comparing LLCs, S-corps, and C-corporations.
By NomadicTax Research Team • 5-8 min read • March 25, 2026
## Overview: Why the OBBB Changes Matter for Entity Setup
Under the One, Big, Beautiful Bill Act (Public Law 119-21), recent legislation has made changes that affect how business entities are taxed, including depreciation rules, reporting thresholds, and clean energy incentives. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai)) Understanding these shifts is critical when selecting between an LLC, S-corporation, or C-corporation.
## Key Changes Affecting Entities Under OBBB
- **100% first-year depreciation**: For qualified production property acquired after January 19, 2025, businesses may fully deduct certain costs in year one instead of spreading out deductions. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **New backup withholding thresholds**: Proposed regulations change when third-party platforms need to perform backup withholding—effectively reducing burden for small volume sellers. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **Modified health savings account eligibility**: Bronze & catastrophic health plans are now treated as HSA-compatible, which can affect small businesses offering insurance benefits. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## LLC vs. S-Corp vs C-Corp: What Looks Best Now?
| Entity Type | Tax Treatment | Key Pros | Key Cons under New Law |
|---|---|---|---|
| LLC (sole proprietorship or partnership) | Pass-through taxation—profits taxed on owners’ returns | Simplicity, flexibility, avoids double tax; new first-year depreciation applies directly | Self-employment tax on profits; backup withholding for platforms might apply depending on volumes |
| S-Corporation | Pass-through, but owners may draw salary | Potential savings on self-employment taxes; flexibility in distributions |
| | | Must adhere to stricter ownership & formal rules; potential issues with tip & overtime deduction limitations under OBBB if SSTB classification applies. |
| C-Corporation | Entity taxed separately, dividends taxed to shareholders | Ability to attract investors, unlimited growth; clean energy incentives & credits may apply | Double tax on profits & dividends; flow-through deductions like overtime/tips or senior deductions don’t benefit individual shareholders. |
## Actionable Steps When Setting Up or Restructuring Your Entity
1. **Assess expected revenue mix** — high production property purchases favor entities that can take full depreciation.
2. **Estimate transaction volume** through third-party platforms**—if under the thresholds, backup withholding rules may not apply, easing cash flow and administrative burden.
3. **Project health insurance plan types**—if employees or owners use HDHP or bronze plans, new HSA eligibility may influence compensation and benefit design.
4. **Consult with advisors** to map out how tips, overtime, or senior deductions will apply depending on your entity type and OSTB classifications under OBBB.
## Example Scenario
- **Startup A** is a manufacturing small business expecting to buy \$2 million in machinery in mid-2025: Choosing an LLC taxed as partnership gives full first-year deduction under Section 168(k)
- **Freelancer B** sells via platforms and earns \$25,000 with 150 transactions annually: Under proposed backup withholding threshold (payments over \$20,000 AND more than 200 transactions), may avoid platform reporting burdens.
## Summary
Entity choice is more strategic than ever under new legislation—depreciation, reporting, and benefit rules have shifted. Plan structure based on expected income, investments, transaction volumes, and benefit offerings. Revisit decisions yearly as guidance is finalized and phased in.