Legal Structure & Tax Planning for Food Businesses
Choosing a legal structure (sole prop, LLC, S-corp) and basic tax planning for food trucks and catering. Not legal or tax advice—when to consult a professional.
This guide covers legal structure and tax planning—not permits (see our Licensing Guide and Licensing by State). Structure and taxes affect liability, fundraising, and how much you keep; get advice from a lawyer and CPA for your situation.
Legal Structures at a Glance
Sole proprietorship
Pros: Simple, no entity paperwork. Cons: Personal liability; harder to raise capital.
LLC
Pros: Liability protection; flexible taxation. Cons: More setup and ongoing compliance.
S-corporation
Pros: Potential tax savings on profits. Cons: Stricter rules; payroll required.
Sole proprietorship
A sole proprietorship is the default if you operate under your own name or a DBA without forming an entity. There is no separate business entity: you and the business are the same for legal and tax purposes. Income and expenses go on your personal tax return (Schedule C). Setup is minimal—you may need a DBA (doing business as) registration and local permits (see our Licensing Guide). The downside is unlimited personal liability: if someone sues the business or you have debts, your personal assets can be at risk. Many operators start as sole props and form an LLC once they have real exposure.
LLC (Limited Liability Company)
An LLC creates a separate legal entity that can own assets and enter contracts. In most cases it shields your personal assets from business liabilities—assuming you keep the company and personal affairs separate (no mixing funds, proper paperwork). LLCs are flexible for tax: by default they are pass-through (income flows to your personal return), and you can choose to be taxed as a corporation if it makes sense. Setup involves filing articles of organization with your state, paying a fee, and usually drafting an operating agreement. Ongoing compliance includes annual reports and state fees, and you must maintain separate books and a business bank account. For food trucks and catering, an LLC is the most common choice once you're past the very earliest stage.
S-corporation
An S-corporation is a tax election (you can have an LLC or a corporation and elect S status). Profits can be split between salary and distributions; self-employment tax generally applies only to salary, not to distributions. That can lower overall tax when profits are high and stable. The tradeoff: you must run payroll for yourself (and any other owner-employees), pay reasonable salary, and follow stricter rules. Many CPAs recommend considering S-corp when net profit is consistently in the $60k–$80k+ range. Get professional advice—the break-even depends on your state, industry, and numbers.
Comparison: Sole Prop vs LLC vs S-Corp
| Aspect | Sole prop | LLC | S-corp |
|---|---|---|---|
| Setup | None (DBA optional) | Articles, operating agreement, state fee | LLC or corp + S-election, payroll setup |
| Liability | Personal assets at risk | Business assets only (if respected) | Same as LLC (entity shield) |
| Tax | All income on Schedule C | Default: pass-through (Schedule C or K-1) | Salary + distributions; SE tax on salary only |
| Ongoing | Minimal | Annual reports, fees, separate books | Payroll, filings, reasonable salary rules |
Tax Planning Basics
Keep business and personal finances separate: use a dedicated business bank account and track every dollar. Common deductions for food businesses include vehicle use (actual expense method or IRS mileage rate), equipment and smallwares, supplies, insurance, permits and licenses, commissary or kitchen rent, and a reasonable portion of phone and internet. Document everything—receipts, logs, and a simple P&L. Use our Profit Calculator and Financial Tracking Template to stay organized.
If you're self-employed (sole prop or single-member LLC), set aside 25–35% of net profit for federal and state taxes. Make quarterly estimated tax payments to avoid underpayment penalties. When to see a CPA: before choosing an entity or S-corp election, when your revenue or complexity grows, and at least once a year for a review. For deeper budgeting and cash flow, see Forecasting Revenue & Budgeting.
Checklist: Before You Register an Entity
- Decide on business name and check availability (state and DBA/trademark if needed).
- Understand your state's filing fees and annual report requirements for LLC or corp.
- Draft or get help with an operating agreement (LLC) or bylaws (corp).
- Plan to open a business bank account and use it for all business income and expenses.
- Confirm you have or will get the right permits and licenses (see Licensing Guide).
- If considering S-corp, talk to a CPA about reasonable salary and payroll timing.