More LLCs = More Headaches. Tax Savings with Disregarded Entities Rarely Pay Off
August 1st, 2025 | 4 min. read

Whether you heard it from a small business attorney or through the grapevine, there’s a rumor that splitting up a business into multiple entities (often as single-member LLCs or disregarded entities) can result in tax savings.
There may be some truth to this, but any tax savings won’t be enough to justify the extra work and associated fees of having multiple entities. Let’s talk about why, in this instance, simpler is better.
At CSI Accounting & Payroll, we’ve provided monthly accounting and tax services for nearly 60 years. That means we’ve talked to a handful of prospects about separating entities, answering questions like:
- Does it ever make sense to split my business into multiple entities?
- What are the tax savings and extra fees in splitting?
- What do disregarded entities have to do with this?
When to Have One Business With Multiple Entities
There’s a difference between having multiple entities that are different businesses (great) and having a business that’s split into multiple entities (debatable). Let’s talk about the debate.
We generally don’t recommend having one business with multiple entities, but we make exceptions for ownership and asset requirements, such as:
- Different ownership structures. If you want to own 100% of an entity but share another with partners, it can make sense to split.
- Real estate. For example, if you own one entity’s building and want to lease it to your operating business, splitting works here.
On the other hand, we make absolutely no exceptions for those who are just in it for “savings”. Let’s talk about them…
Tax Savings < Extra Fees
Are there tax savings when you split a business into multiple entities? Maybe. However, if something is deductible, then it’s deductible regardless of how many companies you have. More companies won’t multiply the benefit. And paying yourself through multiple companies won’t save you in self-employment tax because the IRS prevents this.
Will there ever be bigger tax savings than the extra costs of having multiple entities? No. Multiple entities make accounting more complex. Consider:
- Separate tax filings
- Separate bank accounts
- Separate EINs
- Separate federal and state filings
- Separate annual renewals
- More bookkeeping
- More payroll filings
- More room for error
Since your accountant needs to handle so much extra work, they will charge you accordingly. This will more than cancel out any tax savings!
What About Disregarded Entities?
This subject often comes up when we talk about splitting a business into multiple entities.
If you split your business, you may end up dealing with disregarded entities. Despite their name, they’re not business structures – they’re tax-related. (They can be different structures, although usually single-member LLCs.) These are “ignored” by the IRS for tax purposes and seen as part of their owner.
Even with disregarded entities, you still need to keep separate records. They won’t simplify your business structure or save you more in taxes than you’ll spend on their accounting. It’s the same story.
Dodge Rumors & Get Accurate Advice!
How do you put rumors to rest? With a monthly accountant by your side to offer unlimited advice year-round based on your unique situation, you can focus on what’s actually best for your business.
Now that you know about when it does and doesn’t make sense to split into multiple entities, how the extra fees outweigh any tax savings, and how disregarded entities are the same story, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about the kinds of advice that a monthly accountant can offer:
Brian is the owner of CSI Accounting & Payroll. After earning a double major in Accounting and Financial Management from the University of North Dakota, he joined CSI in 1996 and purchased it in 2002. With decades of experience, Brian now focuses on education: contributing to professional associations and business books, actively participating in continued learning for his team, and, of course, sharing transparent insights on CSI’s website.