Don’t Mix Passive and Active Income! Your Entity Structure is Why You're Overpaying on Taxes

Jul 16, 2025

Mixing active and passive income could be costing you big bucks in taxes. Discover why separating your income streams is vital for financial health. Learn how to choose the right business entity, from LLCs to S Corps, to maximize your tax efficiency. The podcast breaks down strategies like hiring family members and using holding companies to simplify your tax situation. Real-life examples illustrate how smart structuring can help business owners keep more of what they earn.

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INSIGHT

Separate Active vs Passive Income

Separate active income from passive income for optimal tax benefits and clarity.
Mixing rental real estate with operating a business in one entity limits tax deductions.

ANECDOTE

Business Coach Income Example

Business coach example shows active income from coaching and software, passive from rentals and syndications.
Keeping them separate helps apply the right tax strategies for each income stream.

ADVICE

Choose Entity Type Accordingly

Choose entity types wisely: sole proprietorship for starting out, LLC for liability protection.
Consider a C corporation if planning to retain earnings; S corp to reduce self-employment tax above $50K profit.

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Mixing active and passive income in one entity could be costing you thousands. In this episode, we break down why separating your income streams is essential. You’ll learn how to structure your business the right way using S Corps, LLCs, holding companies, and even C Corps to unlock advanced tax strategies. From hiring your kids to slashing self-employment tax, this is the blueprint smart business owners use to keep more of what they earn.

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Chapters:

(01:04) Active vs. Passive Income (Why separation matters)
Why it's important to keep your active business and passive investments in separate entities.

(04:06) Choosing the Right Entity Type
Mike explains when to use sole proprietorships, LLCs, S corps, and C corps, depending on your needs.

(10:55) The S Corp Holding Company Setup
How to simplify taxes and planning by running your active businesses through one S-Corp holding company.

(14:36) Special Structures for Tax Strategies
When to use a sole proprietorship or C corp for things like hiring kids or unlocking health reimbursements.

(15:16) Real-Life Use Cases and Examples
Mike walks through examples for coaches, rental properties, and software businesses using strategic entities.

(21:16) When to Create a New Entity
Key questions to ask when deciding whether to form a new LLC, DBA, or use an existing structure.

Podcast Host:

Mike Jesowshek, CPA – Founder and Host of Small Business Tax Savings Podcast
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🎙 ABOUT THE PODCAST
The Small Business Tax Savings Podcast is your go-to resource for cutting-edge tax strategies to help entrepreneurs legally slash their tax bills. Hosted by Mike Jesowshek, CPA, this show breaks down complex tax topics into clear, no-fluff insights so you can keep more of your hard-earned money.