Most Solo Business Owners Are Missing Out on Tax Savings Due to S Corp Confusion

New Study Finds Only 4% of Solopreneurs Use an S Corp, Leaving Thousands in Potential Savings on the Table

/EIN News/ -- SAN FRANCISCO, March 13, 2025 (GLOBE NEWSWIRE) -- A new study from Lettuce Financial reveals that self-employed professionals and solopreneurs are unknowingly leaving thousands of dollars in tax savings on the table due to confusion over S Corporation (S Corp) benefits. Despite the potential for significant tax savings, only 4% of solopreneurs operate as an S Corp, while the majority default to sole proprietorships (69%) or LLCs (26%)​.

Solo businesses are a vital part of the U.S. economy, yet many are financially vulnerable. Of the 33.3 million small businesses in the U.S., approximately 27.1 million—over 80%—are solo-owned ventures without employees (source Forbes). These nonemployer firms contribute about 6% of U.S. GDP, generating $1.74 trillion annually. Despite their economic impact, 66% of small businesses face financial challenges, leaving many solopreneurs operating on thin margins and missing opportunities to improve their financial stability.

One of the simplest ways solopreneurs can strengthen their financial position is by optimizing their tax structure–yet most aren’t taking advantage of one of the biggest opportunities available. The study, commissioned by Lettuce Financial and conducted by market research firm Alternate Routes, surveyed 774 U.S. solo business owners and found that while many solopreneurs prioritize reducing their tax burden, only 9% consider an S Corp as very relevant to their business. Even among those who have adopted an S Corp structure, some still don’t fully understand how it benefits them​.

Key findings in the study show:

• Solopreneurs Are Playing the Wrong Tax Game—And It’s Costing Them Big. Most solopreneurs default to sole proprietorships (69%) or LLCs (26%), assuming these structures are the simplest. But S Corps offer game-changing tax advantages that too many are leaving on the sidelines. Nearly 37% of solopreneurs cite business unpredictability—like fluctuating income and seasonal revenue—as one of their biggest financial challenges, yet many still overlook the stability that smarter tax structures, like an S Corp, can provide.​
• Most Solopreneurs Are Overpaying the IRS—Giving Away Billions Each Year. Despite 5 million U.S. solopreneurs earning over $100K annually, only a small percentage have made the switch to an S Corp, leaving $50 billion in potential tax savings on the table each year. Those earning over $100K could save $10,000 annually simply by restructuring their business. Unlike sole proprietorships and LLCs, where business owners pay self-employment taxes on their full income, S Corps allow solopreneurs to pay those taxes only on a portion of their earnings—a simple yet powerful tax advantage too many are overlooking. That extra money could be reinvested into their businesses or used to support their families.
• Filing Taxes Feels Like Assembling IKEA Furniture—Missing Pieces and a Whole Lot of Confusion. Many solopreneurs struggle with navigating the tax system and making strategic changes—yet only 13% plan to change their business structure in the next year​.
• S Corp Confusion Is the Budgeting Blunder Solopreneurs Can’t Afford. More than 20% of solopreneurs don’t fully understand S Corps, and 8% believe they’re too expensive to set up—even though the tax savings often outweigh the costs​. Even among those who have an S Corp, 11% are still leaving money on the table simply because they don’t realize the full extent of their tax benefits.
• Solopreneurs Are Stuck in a Tax Maze—But There’s an Exit Sign Right in Front of Them. A third (34%) of solopreneurs say they need a better tax strategy but feel stuck and unsure where to start​. Tax preparation begins with bookkeeping. Keeping detailed records of your business expenses and liabilities is a good place to start. You can do this through accountants, bookkeepers or with software tools like Lettuce.
  

“There’s a lot of misinformation about S Corps, and that’s keeping many solopreneurs from making a decision that could save them real money,” said Ran Harpaz, Founder & CEO at Lettuce Financial. “The reality is, S Corps were built for small businesses, and switching is easier than most people think. Many solopreneurs are already eligible but don’t know where to start.”

Why 2025 Is the Time to Reassess Business Structures

With the 2024 tax season underway, Lettuce Financial encourages self-employed professionals to take a fresh look at their business structure and ensure they’re maximizing every available tax advantage in 2025. Many solopreneurs stick with default setups without realizing how a simple switch—like forming an S Corp—could lead to substantial savings.

To help business owners make an informed decision, Lettuce Financial has compiled essential resources, including:

• Ultimate List of Tax FAQs for Independent Business Owners
• When is The Best Time to Become an S Corp?
• Tax Savings Calculator
  

About Lettuce
Developed by solopreneurs for solopreneurs, Lettuce Financial offers a comprehensive system that empowers solopreneurs to effectively navigate the tax system and implement strategies tailored to their business needs. Lettuce was funded by Zeev Ventures in both its Seed and Series A rounds, along with support from industry veteran angels. For more information, visit https://lettuce.co/

Media Contact:

Karen Swim, APR
karen@wordsforhirellc.com