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Entity selection has always been one of the first big decisions a business owner makes. But after the July 2025 tax law changes, it’s no longer just a startup checklist item—it’s a long-term tax planning strategy.

Today, the right entity choice must align with your growth plans, investment goals, and potential exit timeline.

Why This Conversation Has Changed

At its core, entity structure is the first line of defense in tax planning. Historically, many small and mid-sized businesses favored S corporations or LLCs because they often produced lower annual tax costs. C corporations were typically reserved for companies planning to raise outside capital.

The new tax law has shifted that thinking—largely because of major updates to Qualified Small Business Stock (QSBS) rules.

The Expanded QSBS Opportunity

Under the new law, eligible founders can now exclude up to $15 million in capital gains from the sale of qualified C-corporation stock (up from $10 million) after meeting the required holding period.

With capital gains rates nearing 23–24%, this represents one of the most powerful tax savings opportunities available to entrepreneurs.

Even more impactful, the benefit is now graduated:

• 3 years: 50% gain exclusion

• 4 years: 75% exclusion

• 5 years: 100% exclusion

This makes the incentive more flexible for real-world exit timelines.

The Tradeoff Business Owners Must Consider

In the past, a C corporation can produce higher annual taxes than an S corporation or LLC. But when you zoom out and evaluate a five-year or longer horizon, the potential exit savings can be transformational.

This is why entity selection can no longer be viewed through a one-year lens. It requires modeling different scenarios and aligning your structure with your long-term goals.

The Big Takeaway

There is no cookie-cutter approach to tax planning. Every decision impacts multiple areas of your financial picture.

With the new tax law, entity selection has become a strategic decision that deserves thoughtful planning, ongoing communication, and a clear long-term vision.

Want a deeper breakdown? Watch the full podcast episode to gain more clarity on what these changes mean for your business!