How two overlooked tax strategies can help entrepreneurs stop tipping the IRS and start building intentional wealth
Most entrepreneurs don’t start their business thinking about taxes.
They start with a vision, a product, a service—and then the paperwork follows. Maybe their CPA or friend told them to “just go with an LLC.” It felt simple. Safe. Flexible.
But here’s the truth:
That single box you checked when you formed your business?
It might be costing you thousands of dollars every year.
And when you combine that with the fact that many owners aren’t reimbursing themselves properly for business expenses… it’s not just inefficiency—it’s money lost.
So today, we’re diving into two tax-smart foundations every entrepreneur should have in place by the time they cross six figures in profit:
- The right entity structure
- A clear Accountable Plan
Let’s break both down.
1. Why Entity Selection Isn’t Just Paperwork—It’s a Tax Strategy
When you form a business, you’re required to choose an entity structure: Sole Proprietorship, LLC, S-Corp, Partnership, C-Corp.
But very few entrepreneurs choose based on tax optimization—they pick what’s easiest or most common. Unfortunately, that simplicity often leads to overpaying in taxes, especially as your income grows.
Let’s break this down:
The Sole Proprietor / LLC Trap
If you’re operating as a sole proprietor or a single-member LLC (which is treated the same by default), you’re paying self-employment tax (15.3%) on all net profits.
Earn $100,000? That’s $15,300 before you even start counting federal or state income tax.
Now that tax might make sense when you’re getting started—but if you’re pulling in $100k, $250k, or more in profit, you’re likely leaving serious money on the table by not exploring other structures.
When an S-Corp Saves You
Enter the S-Corporation (or an LLC taxed as an S-Corp). With this election, you split your compensation between:
- A reasonable salary (subject to payroll taxes)
- Distributions (not subject to self-employment tax)
This can reduce your SE tax burden significantly. Add in the ability to deduct benefits like health insurance and retirement contributions, and it becomes a clear upgrade for many entrepreneurs.
2. The Accountable Plan: Your Secret Weapon for Tax-Free Reimbursements
Most business owners use personal funds to cover business expenses at some point. That’s normal.
What’s not normal—but totally legal and powerful—is having your business formally reimburse you for those expenses through an Accountable Plan.
What’s an Accountable Plan?
It’s an IRS-approved reimbursement arrangement that lets business owners (especially S-Corp owners) pay themselves back for legitimate business expenses—without triggering income tax.
What Can Be Reimbursed?
- Home office expenses (portion of rent, utilities, internet)
- Business mileage or travel
- Phone bills used for business
- Office equipment, supplies, or furnishings paid out-of-pocket
- Business meals, continuing education, etc.
Without an Accountable Plan, these expenses either get missed entirely or deducted improperly (which the IRS doesn’t like).
With one in place, you can lower your business’s taxable income and receive the reimbursement personally—without paying income tax on it.
What It Looks Like in Practice
- You create a formal plan document (easy to do)
- You track and submit expenses monthly or quarterly
- The business writes you a check
- Everyone wins (except the IRS)
Bonus: These reimbursements are deductible for the business, tax-free to you personally. That’s the kind of tax strategy the IRS literally designed to benefit business owners.
Why These Two Strategies Work Best Together
Think of entity selection as the structure—and the accountable plan as the system you run inside that structure.
- The S-Corp gives you the power to split income, reduce self-employment taxes, and pay yourself with intention.
- The Accountable Plan makes sure you’re capturing all the tax-free money you’re entitled to as an owner.
Together, they form a rock-solid foundation for building wealth like a true CEO—not a glorified freelancer.
Final Thought: It’s Not Just About Taxes—It’s About Ownership
The IRS isn’t out to get you. But it will take more than its fair share if you don’t play the game intentionally.
You’ve built the business.
Now it’s time to build the systems that protect and grow your wealth.
Entity selection and an accountable plan aren’t hacks—they’re the starting point. And if you’ve crossed the six-figure profit line, the time to upgrade your foundation is right now, not next April.
IMPORTANT DISCLOSURES:
Educational use Only. The market insight published by Breakaway Financial Group LLC (“Breakaway”) is intended to be educational in nature and is not intended to be a recommendation for any specific investment product, strategy, plan feature, or other purposes. Accordingly, it should not be construed by any consumer and/or prospective client as a solicitation to effect or attempt to effect transactions in securities or the rendering of personalized investment advice for compensation.
Advertising and Marketing. Communications such as this are not impartial and are provided in connection with advertising and marketing. This material does not suggest a specific course of action or any action at all. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, insurance, legal, or tax professional that takes into account all of the particular facts and circumstances of an investor’s own situation. No person associated with Breakaway Financial Group is a licensed attorney, and the information contained herein should not be considered legal advice.
