Berkshire Hathaway C Corp or S Corp? The Real Reason Entity Choice Separates Billionaires from Small Business Owners in 2025

Every year, thousands of entrepreneurs wrestle with the decision: should we structure as an S Corp or a C Corp? Most believe this is a minor paperwork exercise. But consider this—one entity decision allowed Warren Buffett’s Berkshire Hathaway to retain and reinvest over $100 billion in profits at a tax rate that no small business owner could access through an S Corp. The takeaway? The difference between a C Corp and S Corp isn’t academic or just a Fortune 100 issue. Whether you earn $120,000 as a consultant or manage a $120 billion company, the IRS entity box you check is decisive for your tax strategy, compounding wealth, and audit risk in 2025.

Quick Answer: Berkshire Hathaway is a C Corporation, not an S Corp. This matters because C Corps can retain and reinvest earnings without immediate shareholder-level tax. S Corps, limited to 100 shareholders and specific ownership rules, push all profits down to owners’ personal returns, incurring immediate income tax. For business owners—from solo LLCs to multi-entity investors—understanding which entity fits your goals and tax profile is the difference between building compounding wealth and leaking cash in unnecessary taxes.

The C Corp Reality: Why Berkshire Hathaway Doesn’t Use S Corp Status

The Berkshire Hathaway C Corp or S Corp debate usually centers around one misconception: “Big companies use C Corp for unlimited growth; S Corp is just for small businesses.” Actually, C Corps allow any ownership structure (including other companies, foreign investors, and unlimited shareholders), offer public stock, and—crucially—enable effective income tax deferral. That deferral, properly structured, lets companies like Berkshire Hathaway reinvest profits year after year without immediate shareholder taxation, leveraging compounding at a corporate tax rate. In 2025, the federal C Corp rate stays at 21%—hard to beat if your alternative is the top individual tax bracket of 37% plus state tax.

Pro Tip: A C Corp can retain earnings for expansion, real estate purchase, R&D, or safety reserves without hitting personal returns. By contrast, every dollar of S Corp net income flows through to its owners and hits their 1040—even if no cash changes hands.

KDA Case Study: LLC Owner on the Fence—Choosing the Right Entity

This case study features Linda, a California-based digital marketing consultant with a single-member LLC. By 2023, her gross revenue hit $340,000. Her CPA suggested S Corp status to save on self-employment taxes, but Linda worried about payroll complexity and future investors. We ran a three-year forecast:

• As an S Corp: Linda would pay herself $120,000 salary, saving about $8,900/year in self-employment tax. However, all profits would immediately flow to her personal tax return.
• As a C Corp: With a 21% federal tax rate, Linda could retain $70,000/year for business expansion or delay higher personal taxes, but would face double taxation if she withdrew large cash as dividends.

KDA helped Linda model her growth plans, investor goals, and realistic payroll strategy. In the end, Linda elected S Corp status—improving her after-tax cash flow and avoiding C Corp compliance costs. Projected first-year tax savings: $9,100 versus Schedule C, and payroll clarity avoided $3,500 in IRS penalties. Linda paid $3,250 for entity structuring and an ROI of 3.9x in the first year alone.

Ready to see how we can help you? Explore more success stories on our case studies page to discover proven strategies that have saved our clients thousands in taxes.

Why Most Business Owners Miss the Differences: The S Corp Trap

If you Google “C Corp vs S Corp,” you’ll hear platitudes about small business simplicity and double taxation. But here’s what average owners are missing in 2025:

• C Corps pay a flat 21% federal tax on income (plus state and city), but S Corps don’t pay federal tax at the entity level. All S Corp profit flows to owners’ personal tax returns, whether or not it’s distributed in cash.
• S Corps are limited to 100 shareholders (must be US individuals, certain trusts, or estates), and can’t have foreign owners or public shares. C Corps have no such limit.
• When C Corps pay dividends, those payouts are taxed a second time on the owner’s return—creating the “double tax” most fear. But many use smart payroll, profit-sharing, or real estate strategies to minimize dividend payouts and keep cash compounding inside the corporation.

Red Flag Alert: If you’re an S Corp owner and fail to take “reasonable compensation” on payroll, you’re setting yourself up for a costly IRS audit. See IRS S Corp compliance info.

How Entity Type Changes Your Tax and Wealth Game Plan

Every decision—salary, distributions, retained earnings, retirement plans, Section 1202 stock exclusion, even your audit risk—is governed by your entity type. In 2025, with California’s high tax rates and the IRS increasing enforcement, the cost of getting this wrong is too high. Here are the main decision points:

• Compensation: S Corps must pay reasonable wages on W-2 and file payroll returns. C Corps have maximum flexibility, but W-2 owners (including Buffett) can optimize FICA and benefit plan deductions.
• Franchise Tax: Both entities pay California Franchise Tax ($800 minimum). C Corps face additional income-based taxes and must file Form 100 in CA. S Corps file Form 100S or LLC 568, depending on baseline entity.
• Ownership Growth: S Corps are for closely-held businesses expecting to stay US-only and under 100 shareholders. Once you want public stock, foreign investment, or complex ESOP plans, C Corp is non-negotiable.
• Investment and Exit: Most VC-backed startups are C Corps for stock option plans and potential Section 1202 tax-free gain treatment. S Corps can’t issue qualifying QSBS (Qualified Small Business Stock). See IRS Section 1202 explanation.

For a complete breakdown of S Corp strategies, see our comprehensive S Corp tax guide.

What If You’re Not Berkshire Hathaway? The Practical Answer for 1099s, W-2s, and Real Estate Investors

Confused about whether you even qualify to choose? Here’s the quick breakdown for 2025:

• W-2 Employees: You can’t elect S Corp or C Corp for your personal paycheck. But side businesses, consulting, and real estate income may allow entity structuring—making a $6K to $30K/year swing.
• 1099 Contractors: Nearly all solo contractors start as sole proprietors/LLCs, but S Corp status can deliver huge FICA/Medicare savings once profits exceed $40K-$50K.
• Real Estate Investors: Most active rental investors use LLCs for liability, but S Corp is rarely advisable for ownership of real estate itself. Use S Corps for management companies, not property holding.
• High Net Worth: Blended strategies—using LLCs for privacy, C Corps for asset protection, S Corps for salary—can deliver multi-entity tax efficiency, especially if assets/income approach $1 million/year or more.

Pro Tip: These savings aren’t reserved for billionaires. KDA routinely helps mid-career professionals save $12K-$42K in first-year entity optimization and S Corp setups. Bookkeeping, compliance, and audit defense are included in our services overview.

What the IRS Won’t Tell You About the S Corp/C Corp Divide

Here are the truths you won’t find in government guides or most tax software:

• You can’t flip between S Corp and C Corp status at will. Each switch has a required waiting period, built-in gains tax (for S → C), and complex CA FTB rules on entity conversion. See IRS FAQs.
• S Corp losses pass through to your return—but once you hit basis or at-risk limits, further losses get suspended. C Corp losses (NOLs) stay inside the entity and can be used against future C Corp income.
• If you plan to raise money, partner with non-US citizens, or offer real stock options, only a C Corp can handle it. S Corps aren’t eligible for public listing, VC stock, or most international deals.
• C Corp compliance is heavier. Expect more forms, audits, franchise fees, and a higher bar for legal/CPA expenses—but also more avenues for tax-deferral and long-term estate strategies (family offices, trusts, dynasty planning).

What if you get it wrong? Retroactive corrections are rarely permitted. The IRS rejects late S Corp elections or improper conversions, forcing many owners into years of higher taxes or audit exposure. For more, see entity formation services.

FAQ: What You Need to Know Right Now

Can you convert from S Corp to C Corp if your business grows or needs investment?

Yes, but timing matters—a conversion can trigger a built-in gains tax (if recent appreciation exists) and may affect CA state taxes. You can convert, but it should be mapped out a year in advance.

Do C Corps really pay less tax than S Corps?

If you reinvest profits, C Corps can enjoy a lower effective tax rate by deferring owner-level tax. If you distribute all profits as cash, S Corps may still win on taxes for businesses under $400K/year in profits, especially in high personal income tax states.

Are trusts, partnerships, or foreign investors allowed in S Corps?

No. All shareholders must be U.S. individuals or certain trusts/estates. If you need VC backing, international members, or wish to go public, C Corp is mandatory.

Will switching entity types trigger an audit?

Not automatically, but each entity change must be filed correctly with the IRS and California FTB, and can create extra scrutiny if profits or assets are significant. Use professional audit representation if you’re targeted.

What Berkshire Hathaway Teaches Every Business Owner about Entity Choice

The Berkshire Hathaway example isn’t just about billions—it’s about understanding how the right entity allows you to control your tax rate, reinvest for future growth, and structure your company for the realities of 2025 and beyond.

• If you want maximum control, unlimited growth, or a shot at public investment, C Corp is the only path.
• If you want to optimize cash flow for a closely held business and minimize payroll/self-employment tax, S Corp is the strategy—just be ready for stricter compliance and personal reporting.

This information is current as of 10/27/2025. Tax laws change frequently. Verify updates with the IRS or FTB if reading this later.

Book Your High-ROI Entity Strategy Session

If you’re a business owner, investor, or high earner unsure whether your structure is costing or saving you thousands, don’t leave it to chance. Book a personalized tax structure assessment—our team will pinpoint the optimal entity choice for your goals, fix your weaknesses, and project your savings over the next three years. Click here to secure your one-on-one consultation now.