Entity Setup

Entity Setup Insights: Choosing Between an LLC vs S-Corporation After One Big Beautiful Bill

New permanent depreciation rules and tax deduction expansions mean structuring your business entity has larger implications—maximize benefits by selecting the right form.

By NomadicTax Research Team • 5-8 min read • July 7, 2026

## How OBBB Changes the Landscape for Business Entities The One, Big, Beautiful Bill introduced sweeping changes that affect deductions, depreciation, corporate structure, and compliance for business entities of all sizes. Some of the most significant include: - **Permanent 100% bonus first-year depreciation** for eligible business property acquired after January 19, 2025. That means many capital expenses no longer need multi-year depreciation schedules. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill?utm_source=openai)) - Expanded deductions under *Third Party Network Transactions* and changes in how **backup withholding** applies for payments via third-party platforms; businesses need to track volume and number of payments to know when withholding obligations kick in. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai)) - Other entity-relevant changes: domestic research expense deducibility, employer-provided child-care credits, and enhanced standard deductions. ## LLC vs S-Corporation: What’s Different Now | Consideration | LLC (Single-member or Partnership) | S-Corporation (Tax-elected) | |---|---|---| | **Depreciation & capital assets** | LLCs can fully benefit from 100% bonus depreciation on eligible property; no separate wages requirement. | S-Corps also benefit, but owner wages must be reasonable; only wage portion subject to payroll taxes. | | **Self-employment vs payroll taxes** | Net income subject to self-employment tax. | Shareholder-employees get salaries (payroll taxes) and distributions not subject to self-employment tax. | | **Deductible fringe/employee benefits** | Flexibility for sole proprietorships, but benefits may be limited. | Can offer benefits like health insurance, retirement plans with potential tax deductibility. | | **Entity formalities & compliance costs** | Lower formalities, easier setup. | More compliance: payroll, shareholder meetings, filing and state fees. | ## Example Setup Scenarios - **New business purchasing equipment**: Suppose you set up as an LLC and buy $500,000 of machinery. You may deduct 100% in the first year under bonus depreciation. If you were considering an S-Corp, similar deduction—but figure in reasonable salary and payroll taxes. - **High tip income vs wages**: As a tip-intensive enterprise, like a food truck LLC, the new tip deduction plus large standard deduction may favor structure as LLC to reduce payroll burden. But if profits are large, converting to S-Corp can mitigate self-employment tax. ## Framework for Deciding Your Entity - **Estimate gross profits & taxable income** under both structures. - **Include deductions and depreciation** fully—bonus depreciation under OBBB may favor purchasing through either entity. - **Factor hiring and payroll requirements**, especially if opting for S-Corp. - **State taxation**: Many states have differing rules for LLCs and S-Corps—check your state rules. - **Growth plan & funding needs**: Entities may have different access to financing, government incentives, or investor preferences. ## Action Steps to Take Before 2027 1. Model your 2026 and 2027 tax returns under both entity types including new OBBB rules. 2. Review your plans for capital investments to maximize bonus depreciation. 3. If switching to S-Corp, ensure payroll systems are in place to manage wages and compliance. 4. Consult with a tax advisor to evaluate state implications and long-term goals. Embracing the new deductions, depreciation rules, and expanded credits can yield substantial savings—selecting the right entity form can magnify those benefits.