That same simplicity, though, cuts both ways. In their vans, Zoey and Finn are one slipped leash from a bolting dog running out into traffic. In the salon, Harper is one wet tile from a client’s hard fall. Because nothing legally separates these three from their businesses, the fallout from a day gone wrong doesn’t stop at the shop—it lands on them, personally.

Most groomers manage that risk with a solid liability insurance policy as a first line of defense. But insurance only goes so far. A serious claim that exceeds the policy limits (or an unpaid business debt) can still reach a groomer’s personal savings, and even their home.

Layla, on the other hand, had a reason to be more careful. Early in her career, an anxious shepherd mix twisted on the table and her clipper created the smallest of nicks. Layla felt the cold drop in her stomach as she pictured the owner’s face at pickup—and the lawsuit that luckily never came. As a homeowner with a car and savings to protect, she formed a single-member LLC not long after.

That protection only holds if you respect it, though. Layla had to treat her LLC as a genuinely separate entity with its own business bank account and a firm rule against running personal expenses through the business. Her CPA explained that if she blurred those lines, a court could decide the separation was never real, effectively erasing the protection she paid for.

It wasn’t a magic shield, either. It wouldn’t protect her from her own negligence, and when she later explored a business loan, the bank still wanted her personal guarantee. What it did do was keep her personal assets out of reach of the everyday liabilities of running a salon, and for a homeowner, that peace of mind was worth the upkeep: formation costs and an annual fee to keep the LLC in good standing, which vary by state.

At that year’s dinner, Harper, Zoey and Finn were venting about how much they owed—roughly $30,000 each, once they factored in both income tax and the 15.3% self-employment tax. They assumed Layla had it better thanks to her LLC, but to their surprise, she paid nearly the same amount.

A single-member LLC is what’s known as a disregarded entity: invisible to the IRS, so its income drops straight onto the owner’s personal return. The LLC had changed Layla’s legal exposure, not her tax bill, so she still had to file a Schedule C and pay self-employment tax just like the others. The only way to actually change how her profits are taxed is to make a separate election with the IRS—a decision entirely distinct from forming an LLC.

The following year, Layla did exactly that; though, notably, she didn’t form a new company or change anything her clients could see. She simply asked the IRS to tax her existing LLC as an S corporation. The election itself cost nothing, just a timely filing. But it came with a new way of seeing herself—from that point on, Layla was both the owner of her business and an employee of it.

That dual role is where the savings come from, and where the rules get strict. As an S corporation owner, Layla had to put herself on payroll and pay herself a “reasonable” salary—roughly what she’d have to pay someone else to do her job. This isn’t a number she could just make up, though. If you pay yourself too little so you can save taxes, the IRS can step in, reclassify your profits as wages and pile on penalties.

Layla landed on a defensible $50,000, which still got hit with the same payroll taxes that make up the 15.3% she was always paying. But the other $50,000 (the profit left over after her salary) passed through to her as a distribution that self-employment tax simply doesn’t touch. That one move shielded roughly $7,650 a year (15.3% of $50,000) from a tax her friends were still paying.

However, being her own employee meant setting up a real payroll: actual paychecks, tax withholdings and the filings that come with them. She also had to set up an Accountable Plan, a simple but powerful tool that let the business reimburse her, tax-free, for the share of her home, car and cell phone used for work. Done correctly, it created business deductions that never became taxable income to her personally.

Now, for all its upside, the S corporation wasn’t free. Hiring a payroll provider, preparing and filing a separate business return (Form 1120-S), and the meticulous bookkeeping an S corporation demands all meant higher costs. The savings only made sense because her profits had grown high enough to where the tax savings far exceeded those added costs. Below a certain income, the math simply doesn’t work.

The next year, Zoey and Harper decided to open a pet spa together. They formed a multi-member LLC, and on their attorney’s advice, they didn’t stop at the basic paperwork. They sat down and hammered out a real partnership agreement, documenting who contributed what, how profits would be split and, less comfortably, what would happen if one of them ever wanted out or passed away.

Side by side at their two stations, Zoey and Harper’s appointment book filled, and so did their shared business bank account. But success brought a challenge of its own. The two friends soon found they had very different ideas about what to do with all that cash. Zoey wanted to plow the profits back into the business, and Harper wanted to take the cash home as a partner distribution. There was no clean right answer, just two owners with different but valid priorities.

When tax season arrived, they discovered partnerships come with their own March tax deadline. Their salon had to file its own return, a Form 1065. The partnership itself paid no tax; instead, it issued a form (Schedule K-1) reporting each partner’s share of the profit, which then flowed into their individual returns. The catch was, Zoey and Harper couldn’t file their own individual returns until the partnership return was finished.

There were new terms to learn, too. Because Zoey and Harper wanted to ensure they received at least 50% of the money for the grooming work they personally did, profit or no profit, the partnership used what’s called a guaranteed payment. Think of it as a partner’s version of a salary: it gets paid regardless of how the business performs that year. They also had to track each partner’s capital account, a running tally of what each put into and pulled out of the business.

Even after all that, the bottom line was the same. A multi-member LLC, by default, is taxed as a partnership: the profits pass straight through to the owners, who pay income tax and the same 15.3% self-employment tax on their share. The new partnership structure gave them liability protection and a clean framework for running a business together, but it didn’t shrink their tax bill by a single dollar. Just like their sole-proprietor days, they each still owed around $30,000.

Another year later, at the same restaurant, the talk drifted the way it always did. Only this time, no one was guessing. Four friends who started in the same place had each taken a different road, and they laid those roads out plainly:

• Sole Proprietorships: Simple and low-cost but offer no personal asset protection.
• Single-Member LLCs: Add legal protection but do not reduce taxes unless paired with an S Corp election.
• Multi-Member LLCs: Provide structure and liability protection for partnerships but bring complex compliance and offer no inherent tax savings.
• S Corporations: Can significantly reduce self-employment taxes but require payroll, meticulous bookkeeping and separate tax filings.

As they wrapped up their night, they all raised their glasses in a toast to clean cuts, clean books and keeping more of what they earn.

Jason Friedman is co-founder of Friedman & Friedman Accounting & Tax Advisors (aka “Friedman Tax”), a family-owned accounting and tax-advisory firm dedicated exclusively to tattoo artists, pet groomers, body piercers, hair stylists, barbers, and salon/shop owners. Founded and operated by two CPA brothers, the “Tattoo Tax Guys,” they bring deep experience in complex tax and accounting work, a passion for helping creative entrepreneurs, and a strong focus on exceptional client service. They offer full-service tax preparation and bookkeeping, LLC formation, strategic tax planning, back-tax cleanup, and consulting, all tailored to the unique needs of artists, stylists and pet grooming professionals.