How to Use Entity Stacking to Optimize for Growth and Taxes

Weekly Tax Tips

Trivia Question❓

Which popular video game lets players build and manage multiple in-game businesses or properties separately, teaching strategy and risk management in a virtual world?

Answer at the bottom of the newsletter

How to Use Entity Stacking to Optimize for Growth and Taxes

If you’re running a growing business—or managing multiple ventures—you may want to consider a powerful strategy used by sophisticated entrepreneurs and investors: entity stacking. At first glance, it might seem overly complex. But when done right, stacking multiple legal entities can help you reduce taxes, limit liability, protect assets, and create greater flexibility for long-term growth.

So, what is entity stacking? It’s the practice of using multiple business entities—like LLCs, S-Corps, partnerships, or C-Corps—in a layered structure. Instead of housing everything under one roof, you separate your business functions, assets, or income streams across multiple entities. This not only provides legal insulation between assets and operations, but also allows you to take advantage of different tax treatments for different parts of your business.

Here’s a simple example: Suppose you operate a consulting firm. You create an S-Corp to serve as your main operating company, paying yourself a reasonable salary to reduce self-employment tax. Then, you set up a separate LLC taxed as a partnership to own your business’s intellectual property—your courses, books, or licensing deals. Your S-Corp pays royalties to the LLC, moving money in a tax-deductible way while shifting profits to an entity that may have different tax obligations or partners.

You could also use entity stacking to isolate risk. For instance, if you own real estate or heavy equipment, you might keep those high-value assets in a separate LLC and lease them to your operating business. If the operating company gets sued, the assets in the second entity are insulated from liability.

Another benefit? Strategic income splitting. With multiple entities, you may be able to bring in family members or key employees as partial owners, spreading income across lower tax brackets or creating retirement benefits and incentives in a more controlled way. Entity stacking can also help maximize deductions—such as rent, royalties, and management fees—by shifting expenses between entities in ways that remain fully compliant.

That said, this strategy is not plug-and-play. You need airtight documentation, separate bank accounts, and clear business purposes for each entity to avoid piercing the corporate veil or drawing IRS scrutiny. Done sloppily, it can backfire. Done correctly, it can transform your tax strategy and make your business more resilient.

Bottom line: Entity stacking isn’t just for big corporations—it’s a smart, scalable strategy for savvy business owners. Talk to your CPA or legal advisor to explore whether this structure could work for your goals. The more complex your business becomes, the more valuable this level of control and protection can be.

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💡 Answer to Trivia Question:

SimCity — players can create separate zones and industries, isolating risks and managing resources strategically, similar to how entrepreneurs layer real-world business entities.

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