The Internal Revenue Service published Tax Tip 2026-46 on June 4, 2026, reminding would-be entrepreneurs that one of the most important first steps in starting a business is choosing the right structure. The agency notes that the choice shapes how a business pays taxes, files returns, and handles liability.
For self-employed readers weighing whether to formalize a side hustle or launch a new venture, the tip is a timely checklist. The structure you pick on day one affects your tax bill, your paperwork, and your personal exposure for years.
What The IRS Tip Actually Covers
The IRS lays out the most common business structures: sole proprietorship, partnership, corporation, S corporation, and the limited liability company, or LLC, which is allowed under state law. Each is taxed differently, and the agency directs readers to its business structures page for details.
If you run an unincorporated business by yourself, the IRS treats you as a sole proprietor and the income flows onto your individual return. A single-member LLC is disregarded for federal tax by default, meaning it is taxed like a sole proprietorship unless the owner elects corporate or S corporation treatment.
The tip also flags practical first steps beyond structure, including applying for an Employer Identification Number when one is required and keeping clean business records from the start.
Why This Matters For Self-Employed Owners
Many self-employed people drift into sole proprietorships without ever making an active choice. That default works for some, but it leaves all profits exposed to self-employment tax and provides no legal separation between business and personal assets.
Choosing or changing a structure can lower a tax bill or add legal protection, yet the right answer depends on income, risk, and growth plans. Getting it wrong, or ignoring the question entirely, can mean overpaying tax or scrambling to restructure later.
What Self-Employed Owners Should Do Next
Start by reading the IRS business structures page and mapping your expected income for the year. If you are earning enough that self-employment tax stings, ask a tax professional whether an S corporation election could save money after payroll costs.
Apply for an EIN if you plan to hire employees, open a business bank account, or elect corporate treatment, as many banks and clients now expect one. Separating business and personal finances early also makes every future tax season simpler.
What To Watch Next
New business formation has stayed near record highs, with the most recent monthly tally among the strongest on record, as covered in our report on April business formations. That pace suggests more first-time owners will face the question of structure this year.
Watch for additional IRS small business tips through the summer, since the agency typically rolls out a series aimed at new owners. Any change to self-employment tax rules or pass-through treatment would also reshape the structure math.
Photo by Janay Peters: Unsplash
