How high-income professionals can protect their earnings and lower their tax burden through smart structuring.

For many successful business owners and professionals, the rewards of entrepreneurship come with a heavy cost—self-employment tax. Whether you operate as a sole proprietor, partnership, or PLLC, much of your income is subject to the 15.3% federal self-employment tax, on top of federal income tax and additional Medicare surtaxes for high earners.

Without the right structure, high income can create high friction—and unnecessary tax drag.

One solution is the Management Services Organization (MSO): a separate business entity that can reduce your self-employment tax exposure, retain earnings more efficiently, and help create planning flexibility.

Understanding the Self-Employment Tax Burden

If your business is structured as a partnership or disregarded entity (like a PLLC taxed as a sole proprietor), 100% of your income is exposed to self-employment tax—including:

• 12.4% Social Security tax (up to the annual wage cap)
• 2.9% Medicare tax on all income
• 0.9% Medicare surtax on income over $250,000 (for joint filers)

Combined with a top federal income tax rate of 37%, this can leave business owners paying over 50% on every additional dollar earned.

The MSO Advantage: Restructuring Income More Efficiently

An MSO is a separate business entity, typically structured as a C-Corporation, that provides services to the operating company—such as billing, HR, finance, marketing, or compliance.

Instead of keeping all business profits inside the original PLLC (where they’re subject to SE tax and personal income tax), a portion of those profits can be shifted to the MSO in the form of management fees.

What makes this powerful:

• The MSO pays corporate tax at a flat 21% on its net income
• The owner receives W-2 income, only paying FICA on that portion
• Retained earnings can be invested or used strategically, without SE tax exposure

When compared to income taxed at 37%, the MSO structure can provide up to a 44% reduction in federal tax per dollar retained.

Case Study: Reducing SE Tax with an MSO (Medical Practice – PLLC, $1.8M Income)

A physician earns $1.8 million annually through a PLLC taxed as a partnership. Since all income flows through to her personally, it is fully subject to self-employment tax and federal income tax—creating a combined effective rate of over 50%.

To reduce this burden, she establishes a C-Corporation MSO to provide contracted services like billing, HR, marketing, and compliance to her practice.

• Her PLLC pays the MSO $1 million per year in management fees.
• The MSO uses $600,000 for operating expenses.
• The remaining $400,000 in net income is taxed at the 21% corporate rate, instead of at the personal level.

The Results:

• Taxing $400,000 at 21% instead of $1 million at 37% creates a federal income tax savings of $286,000.
• Avoiding self-employment tax on the $1 million shifted out of the PLLC results in an additional $38,000 in SE tax savings.
• Total estimated annual tax savings: $324,000.

This strategy enables the physician to retain more income and reduce unnecessary tax drag—while maintaining operational compliance and planning flexibility.

Compliance Considerations

To be effective and IRS-compliant, the MSO must be:

• A real business performing documented, reasonable services
• Charging market-rate fees based on scope and deliverables
• Paying reasonable W-2 compensation to the owner if they are materially involved
• Properly documented with contracts, books, and financial separation

When done right, this strategy offers a powerful combination of tax reduction, control, and scalability.

How Guardian Tax Consultants Supports MSO Structuring

While each case is unique, Guardian helps business owners:

• Structure MSOs using C-Corp tax treatment for maximum savings
• Calculate and document management fees and compensation
• Collaborate with legal and accounting professionals to ensure clean implementation
• Integrate the MSO into broader estate, tax, and retirement planning
• Build models to show before-and-after tax outcomes

Reduce self-employment tax
MSO C-Corp strategy
Business owner tax planning
Professional practice tax structure
Management services entity
C-Corp income strategy
SE tax savings for high earners
Tax mitigation for doctors and professionals

Internal Guardian Resources

• Structuring Your MSO: https://www.guardiantaxconsultants.com/mso-overview
• SE Tax Planning: https://www.guardiantaxconsultants.com/se-tax-planning
• Tax Strategies for Business Owners: https://www.guardiantaxconsultants.com/tax-strategies
• Multi-Entity Structuring: https://www.guardiantaxconsultants.com/multi-entity-strategy

External Sources for Credibility & SEO

• IRS – Self-Employment Tax Overview: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax
• Forbes – How to Lower Self-Employment Tax: https://www.forbes.com/advisor/business/self-employment-tax/
• Harvard Business Review – Tax Planning in Business Strategy: https://hbr.org/2020/11/what-small-businesses-need-to-know-about-tax-planning
• Journal of Accountancy – Reasonable Compensation for S-Corps: https://www.journalofaccountancy.com/news/2022/jun/s-corporation-reasonable-compensation.html
• Tax Foundation – C-Corp vs. Pass-Through Taxation: https://taxfoundation.org/publications/pass-through-businesses-data/