FeedbackWrench I want to build and sell my business and I heard if I become a s Corp I will get hit with major taxes when selling it. What’s your take ? It’s a clothing line.
DJ Royale when starting, it's the most confusing. Another difficult thing is that your CPA or tax pros don't have the time or idea to teach you what you need to know.
Thank you SO so much. Finally someone who can communicate and teach valuable information in a way that is easily understood and organized. I so appreciate your video for I have wasted 3 days asking TAX EXPERTS specific questions of why LLC with s-corp taxation would be better than s-corp directly and they either talk in CODE that I have to constantly ask for an explanation or they simply unable to answer intelligently. I HAVE ALWAYS said most people don't have a clue on communicating to others clearly. THANK YOU ONCE AGAIN for being ONE OF THE FEWS WHO CAN!
Extremely helpful! Not going to lie. Was thinking of converting my buy and hold rental business into an s Corp. That little detail about my passive income not being subject to the se tax is VERY good to know. Trying to be creative with tax savings but I see that I should stick to good ole LLC
Thank you for the clarification. I was wondering when to transfer my llc to an scorp. I'm now starting out and looking to buy and hold rental properties. 🙏🏽This is very helpful.
Talk about helpful, it is 6:48am here in Michigan, and this video just helped me avoid doing EXACTLY what you stated. I am just really getting started with an online boutique and I almost elected an S-Corp. Thank you, thank you, thank you!!!
Great video! I would open an S-Corp but after your video I will open an LLC. I'm starting a Dump Truck company, with only 1 truck I'll be the owner alone. But I think it's better to open an LLC after watching your video. Thank you
One thing to mention, and this kind of goes with just starting out, but you have to pay yourself a reasonable salary, and if you don't have much capital then that can bankrupt your business and leave you with no capitol for expenses. You can put your money back into the business but that becomes a mess woth taxes and book keeping
We recommend waiting to become an s Corp until profits mean that the tax savings are significant... Which would mean you won't be in this particular situation. But you are right!
Why don’t people talk about this? Is this some sort of taboo? This one video was EXPONENTIALLY more helpful than the majority of other videos I’ve seen about this issue. Best advice about LLC vs. S-Corp right here...I know what I’m going to do now lol.
Thanks for making this informative video! I've watched so many videos on this subject and didn't get the answers you gave in the first 3 minutes! I'm subscribing!
I needed to supplement my income, and I have an LLC, but things are slow. I wanted to get involved in work from home programs. However you need to be a partnership or an s-corp. But after watching this video it looks like I should wait, because I have very little profit this year.
I could swear somewhere I heard along the way that if you want to file for S Corp. status you have to do it within 30 or 90 days of starting the business.
AV8R Tom If you want S Corp status from Day 1, you are supposed to file an S election form by the 15th day of the third month the business is operating (and you need a business entity, either LLC or corp). Even if you do not make this deadline, you can apply to the IRS for permission to retroactively make the election. You can also make the election for subsequent years by meeting this deadline, or seeking retroactive permission. Of course he is saying it may not be justified in the first year, or maybe even more than one year, for a start-up to make the election.
The short version of the video: 1. Don't become an S Corp when you are starting out. 2. Don't become an S Corp when you are participating in passive income business activities like rental real estate b/c that income is not subject to self employment taxes. Keep passive income business in a LLC and not an S Corp.
Surprised that Section 311(b) didn’t get mentioned here. One of the biggest disadvantages of an S Corp is property distributions to owners being treated as sold at the time of distribution. If your business has a lot of physical property, it is better to drop all of the physical assets into a partnership.
Hey man great video. My fiancé and I opened a training business LLC and now I’m being told that since she’s a 50% partner we are better off as an S Corp.. however watching your video gets me nervous because I am just starting out. Any help you can give would be great thank you
Is the passive income advice meant specifically for rental properties, or all passive income activity such as online digital products, etc.? Thank you for providing clarification.
That is a great idea, I wouldn't recommend getting a CPA, I would recommend checking out the best TurnKey solution for small s-corp sore even small LLCs. I seriously quit working with Nuance financial because I found such a better solution that's so much less expensive. here is my affiliate link to this service, but it will provide you bookkeeping, bookkeeping software, payroll, payroll services, tax planning, tax returns, and everything you need, for a monthly payment of around $200 or so www.xendoo.com/learn-more/?fp_ref=rob69. As for the specific advice, there are two reasons why you might want to become an LLC, legal and tax. One, legal, people will use a LLC in order to protect themselves from certain liabilities attached to the type of work they do. The basic protection you will have is separating your personal assets from company assets if you were to have some sort of litigation or risk exposure. Quite frankly, you'll find that an LLC doesn't do a lot when you are the only owner and the one participating in the business when it comes to legal protection, if you feel at risk you'll want to look into insurance. to tax, when it comes to taxes, the only differentiation you will see is when you become a s-corp. Remember, you are taxed as a sole proprietor when you are just working as a freelancer, and you are a sole proprietor tax wise even when you become an LLC, unless you elect to become an s corp. none of this is specific advice just for you, please seek professional advice, but I would recommend that if you are starting to make profits north of about 20,000, go to xendoo at my affiliate link and get your bookkeeping and payroll setup so that you can become an s corp.
HEADBANGRR a sole proprietorship has no tax shelter or liability shelter. A sole proprietorship is usually what you file as when you are working as an IC automatically. The decision thereafter lies within picking between an LLC or Corporation. The sole proprietorship has no liability protection, meaning if you are sued for business related reasons, they can come after your personal assets for recovery of damages. As an LLC or Corp they cannot. The major differences between an LLC and an S Corp then lie within tax benefits. Consult a tax expert to fully understand the differences.
Hello Rob. Thanks for the video. I am an SMLLC startup and considering starting as an S Corp. I heard you mention in point 1 not to do it since you don’t know if your profits will be high enough yet for it to make sense. However, the only disadvantage I can find right now is that it will require more paperwork when filing. However, that’s seems like something worth taking on if I were to actually have enough profits in the business to use the 20% tax deduction plus pulling out my salary. I will already have payroll software and etc anyway. Question: are there any other disadvantages of filing as S Corp other than filling out more paperwork and having a payroll service? Thanks for your time! Frank
Rob, Just LIKED and Subscribed. Question: I have a WY LLC holding company with three subsidiary LLCs in GA. Each GA LLC owns one property. If my WY LLC creates at GA Property management LLC to collect rents, find tenants and manage the three properties, how should the property management company be taxed? S Corp? Thanks. Love the channel.
Very good information! I have one question: what about passive income earned from other activities than real estate, such as through affiliate marketing? That’s OK with an S Corp. designation, correct?
How does an LLC become an S-Corp? I thought that an S-Corp was an election for C-Corp. to be taxed as a partnership. An LLC is already taxed as a partnership when there are two or more members.
If you are a US digital nomad contractor, and single owner S-corporation, earning 140k/year and qualify for the FEIE, which allows your first 105k to not be subject to income taxed, would the remaining 35k given to yourself as "distributions" be taxed?
Do you have an opinion on what we should do in our family: I have a small salon 10yrs old that is DBA and my husband is starting a food truck. We are going to protect ourselves with LLCs, but is there a way, and if so, do you think it is good idea to have an umbrella company that is an s-corp over both? We were hoping to be able to provide insurance for our family and pay ourselves a meager salary both taking advantage of the tax benefits of the s-corp.
“Becoming an S Corp” is actually an election for tax purposes. In order to elect S Corp status, your business has to legally be set up as an LLC or a Corporation. LLC’s without the S election are considered sole proprietors or partnerships (depending on if there are one or more members). When he says “becoming an S Corp”, he is referring to making the S election for tax purposes by sending in Form 2553.
@@Thetaxguy10000 sure, but that still doesn't answer the question. Thanks for the information though. Filling for llc then filling out form 2553 at tax season is way easier business structure then s-corp company. Either way as an llc you are considered self employed. At s corp you are an employee of your brought to life corporation.
@@heatncool what do you mean it doesn’t answer the question? Not trying to be smart here, I just legitimately don’t know how I didn’t answer the question. Happy to help if you’d like to rephrase. Form 2553 is a one time filed form to elect S Corp status. Once you file it, you’re taxed as an s Corp and you have to file an 1120-S, distribute K-1s, etc. moving forward. An LLC is a legal status. An S Corp is a tax status. If all you are is an LLC, then your default tax status is Sole Proprietor or Partnership. If you make the election, you can change your tax status to an S Corp. Does that make sense?
@@Thetaxguy10000 absolutely not. My question is the difference between an s corp business structure vs an llc filing form 2553 to be taxed as s corp (ps that's a tax status only) running an s corp is alot more difficult then an llc (filing 2553 for taxes) you haven't mentioned a single difference. However you are knowledgeable I can tell and are kind.
@@heatncool gotcha! I think the confusion here is that you’re looking at the S Corp business structure and an LLC filing Form 2553 as two different things. They’re the exact same thing. So, if your LLC decides to file form 2553, you have to abide by all of the S Corp rules (meaning you pay yourself a W-2 wage for reasonable compensation, file Payroll, are under 100 shareholders per the tax code, don’t have any ineligible shareholders, etc.). If you chose to do that, it is a One Time election that gives you all of the S Corp benefits (aka no payroll taxes on portion of income that isn’t included in your wage - as discussed in the video) and allows you to file as an S Corp for tax purposes. If you don’t make the election (file form 2553) or you don’t qualify under the tax code, then you can’t get those benefits and you’re not taxed as an S Corp. Either way you go, you are still an LLC legally. The question is just how you are taxed. Does that clear it up? Sorry for all the confusion. Happy to elaborate further or discuss qualifications/requirements for S corps if you’d like!
So when would you want to become an S corp? I'm a home based media studio - and we freelance videography, photography, etc. for weddings, corporate gigs, bands, etc. Should I make my company, Go Polaris Studio, just an LLC? or an S Corp? I have so much gear and assets.
The goal is as soon as your net profits are high enough, that when you shift 30-70% of it (up to your reasonable calculations) that the 15.3% tax is worth it. Making about 50,000 now? Well, if you took a 20k salary, that would mean 30k as distribution... 30k x .153 = 4590 in SE tax savings... SO. now the question is what's YOUR businesses solution for payroll and bookkeeping... If you do it yourself, you can do it on Quickbooks ONline, with Quickbooks payroll for about $100/month total.... then the tax return will be a bit more as well. HOWEVER - if your'e going to want a full service outsourced accounting firm, they're more money.... SO you do the conversion when it meets your company and operational goals.... remember, there are other things that might come into play as well - like hiring your kids, retirement plan goals etc.
@@FeedbackWrench Thank you so much for the indepth response - you are seriously making a difference in the world! I guess it looks like the wise choice would be to just be an LLC until it makes sense like you said. It's probably misinformation, but the reason I was so interested in the S-Corp is because I had heard that while an LLC is one legal distance away from your own liability - (Scenario: bride goes nuts from her wedding movie I made her, and sues me for as much as she can. With no LLC, I could have my actual property seized. However, I have read that even with an LLC, you can have your property seized, and that only with an S-Corp is it "legally distant" enough to not have property seized in legal dispute.)
This is great information! How does the taxation work if, instead of rental real estate, you owner finance real estate? Is it still considered passive income? Thanks!
Not bad, still a financial derivative though and therefore has some correlated market risk. In other words, the supply and demand of the shares will impact their value... Fees, management risk and legal risks also come into play... But REITs are awesome as well! Just different from owning your own property
Hello, I was thinking about opening 3 different businesses. I was trying to figure out which one would work for all(either an LLC or S-corp). What I wanted to know was for an S-corp, we'd have to pay ourselves with reasonable compensation. In order, to be taxed lower. Reasonable compensation being "salary". But I'm confident that one of my businesses will make more money then the others. Meaning, I'd would be making more profit regardless of what i put for reasonable compensation for the other two if I chose to do s-corp. Would that be a problem? Can I make one business an LLC & the other s corp? And can I change from an S-corp to an LLC or vise versa?
So you are saying that the s corp converters all of your income from being subject to self employment tax to a split, however it is backwards when you have rental real estate that is already has tax advantages you don’t want to split that.
If getting started, if making lots of profits, should i assume. So not about getting started, more about profit amount i assume. Would like to know that usual profit threshold to make the jump
THe key is to make sure the amount saved in taxes (distribution amount *.153) is greater than the cost of compliance (getting payroll, 1120s tax return, accounting, documents etc). Usually that 40k is the low end where it makes sense.
What if i have w2 job and get 60k annually, I'm just starting a LLC, does it make sense to be taxed as s corp? or just leave it as sole prop? I might make 30k annually with the LLC
Sounds silly, but how are you spending the cash? It might be a REALLY good idea to open a SOLO 401k with Vanguard and make massive employer and employee contributions with your llc. If you don't want to invest it, then S-Corps often make sense RIGHT around the point your at. Basically, you're bringin in 30k, paying 15.3% tax on all of it - but what if your salary should be, like 15k? That means you've now saved like 2300... which isn't huge. but in some states that adds up faster. I would say it depends on what your growth will probably be, what you're goals over the next couple years would be etc. don[t convert and then try to undo it, measure twice cut once.
@@FeedbackWrench thank you for taking the time to answer me, I already have 401k with my job and I contribute the max, im opening a online furniture store, so i would making around that amount next year, I’ll send the form to be taxed as s-corp then, thank you so much for your time. I really appreciate it.
Thank you for this! I have a related question that I can't seem to get a straight answer on. I run a photo studio where I rent out my space by the hour. I do not own this property, however my accountant filed this income under schedule E rental income. In this case, is an LLC the way to go? Thank for the help!
hello, i have an LLC company in Delaware and i want to close it. So i filled required forms and sent it. My question is, i wrote 10 of July to closing date, but my forms sent there in 7 of July and now the date was past and nobody do anything my forms. Is this a problem? I really don'T know what to do i'm worried. Thanks..
The implication of the first point is that you would start as an LLC and then, when the tax savings justify it, migrate to an S Corp. If that is true, does someone simply file the proper forms to be taxed as a corp, or does the business change it's structure to become a corporation?
We all start out taxed as a sole proprietor. LLC's start out taxed as a sole prop, and before we make a legal entity as an LLC, we are a sole prop. So you will automatically start out taxed as a sole prop (which people, as you have, call an "LLC") An LLC is either an LLC taxed as an s-corp or an LLC taxed as a sole prop (which is a schedule C). So yes, grow into the S-Corp until the savings beats the bureaucracy.
Get a business bank account asap. Then put all income in there and all bills through that. File for a business and get registered so you can get a business bank account. That's the FIRST STEP no matter what.
Don't commingle the funds. YOu need to keep records of income and expenses for the business, and a separate bank account tends to make that the most simple when you start.
Ker Kare you can, but you’d be increasing your taxes. Passive income from a rental property is not subject to social security or Medicare. The only tax you’re mitigating with an s Corp is social security and Medicare. You would actually be screwing things up by placing into S-Corp
Quick Question; In 2019 I earned about net 30,000 from my S-corp. I am married with 2 kids. I am not getting any earned income credit or child tax credit. Is there any way to get earned income credit or child tax credit for 2019? If not, what should I do so I don't have this issue for 2020? Is there any benefit for me to switch to LLC?
So I'm in the buy and hold for rental income. I came across this video after the banking institution I was setting up my llc single member account with insisted I had to choose either an s Corp, or c Corp. well that didn't set right with me so I went in search of answers. I was blessed to come across your video which was precise and to the point. I went back in there with full assurance and asserted my findings. The dear lady went and got her manager who pointed out to her that she had to select single member llc. She apologized for the over site. I can't thank you enough for being direct, to the point! Exactly what I needed to hear without a lot of confusing extra information. God bless you sir!!!
Don’t worry, it’s usually a forgiving thing if you just make sure you don’t commingle your funds and you try to make it right.... also, go make some sales!!!!!
Anthony Gordon I am guessing the company wants you to sign up as a client, rather than give answers to specific situations on You Tube. But $100K is plenty of profit to justify making the election, but then you have to consider what is the amount of salary you must pay yourself. Only when you consider both profit and salary can you answer the question
This video will not load on my phone computer or any device. I can watch any other videos, but this one is having major issues. Could you re-upload it?
It's amazing how many videos keep saying, "...become an s-corp." This is why people remain confused. "Becoming an S-Corp" is not a thing. What you are doing is "electing to be TAXED" as an S-Corp versus as a sole proprietor or other tax category. Regardless of which you elect to be taxed as, you still remain the entity you are registered as (sole proprietor, LLC, Corporations, etc).
What if my "passive income" is my main source of income? My blog generates a few dollar by affiliate links or I have an online store, something of that nature. Basically, I do not have traditional employment but freelance, does this still apply? I'm just starting out, so I would have to assume you are going to direct me to your #1 anyways. :) Thanks!
Great question. You have to separate what business people call "passive income" and the IRS. They have nothing to do with each other. The IRS defines passive income very specifically. In your case you are facing the same situation as a regular business here.
First of all just found your site and Love! Your videos. I have a e commerce buisness that I want to convert to a s corp once I reach the 40k a year its a llc right know, but I would like to invest the profits into rentals. Should I create to separate businesses, one for ecom s corp, and one for real estate LLC. Thank you.
Great question. YOu need to do it right... but own Real Estate in a separate LLC (not S-Corp). Here is a top-level set of ideas you can use to lower your taxes. ua-cam.com/video/g0PdY4bdcqM/v-deo.html Remember, never waste a dollar to save a quarter in taxes.... real estate is a great tool, and legitimately renting out to your S-Corp as the land lord is a great strategy... so long as it makes sense for your s-corp to actually be a legit tenant rather than having someone else pay you rent.
Dad I do not believe you can choose to be taxed as an S Corp under a C Corp. The entire difference between the two is that C Corps are usually bigger businesses that can pay a whole lot of dividends to numerous shareholders. Now, a C Corp, you also have to remember, gets double taxation. This is because both your salary paid out to you by your C Corp and the money that the C Corp retains are taxed. The business has corporate income tax and the owners have personal income tax. An S Corp avoids double taxation.
![3 Bookkeeping Business Fails You Gotta Stop! [Starting a Bookkeeping Business & Accounting Firm]](/img/n.gif)
WOW! THanks for all the support. IF this added value, please consider supporting me (and my 4 kids) on Patreon! www.patreon.com/feedbackwrench/
FeedbackWrench I want to build and sell my business and I heard if I become a s Corp I will get hit with major taxes when selling it. What’s your take ? It’s a clothing line.
This is the comment I was looking for before wasting my time on anymore videos... thank you
Finally someone who can answer the simple question as to when one should start consideration or what to have when beginning
DJ Royale when starting, it's the most confusing. Another difficult thing is that your CPA or tax pros don't have the time or idea to teach you what you need to know.
Thank you SO so much. Finally someone who can communicate and teach valuable information in a way that is easily understood and organized. I so appreciate your video for I have wasted 3 days asking TAX EXPERTS specific questions of why LLC with s-corp taxation would be better than s-corp directly and they either talk in CODE that I have to constantly ask for an explanation or they simply unable to answer intelligently. I HAVE ALWAYS said most people don't have a clue on communicating to others clearly. THANK YOU ONCE AGAIN for being ONE OF THE FEWS WHO CAN!
Sorry for the self promotion - but if it was worth anything, maybe consider supporting us on our new patreon account? www.patreon.com/feedbackwrench/
Extremely helpful! Not going to lie. Was thinking of converting my buy and hold rental business into an s Corp. That little detail about my passive income not being subject to the se tax is VERY good to know. Trying to be creative with tax savings but I see that I should stick to good ole LLC
Thank you for this! Super personable, warm and approachable delivery, too. Appreciate it!
Alexis Sclamberg we appreciate the encouragement Alexis. Good luck with your business and keep pushing on!
Thank you for the clarification. I was wondering when to transfer my llc to an scorp. I'm now starting out and looking to buy and hold rental properties. 🙏🏽This is very helpful.
Talk about helpful, it is 6:48am here in Michigan, and this video just helped me avoid doing EXACTLY what you stated. I am just really getting started with an online boutique and I almost elected an S-Corp. Thank you, thank you, thank you!!!
Great video! I would open an S-Corp but after your video I will open an LLC.
I'm starting a Dump Truck company, with only 1 truck I'll be the owner alone. But I think it's better to open an LLC after watching your video.
Thank you
I was just about to make mistake number 2!! Thanks for the great content
I am glad so many of your viewers found your explanation understandable and useful, good job.
One thing to mention, and this kind of goes with just starting out, but you have to pay yourself a reasonable salary, and if you don't have much capital then that can bankrupt your business and leave you with no capitol for expenses. You can put your money back into the business but that becomes a mess woth taxes and book keeping
We recommend waiting to become an s Corp until profits mean that the tax savings are significant... Which would mean you won't be in this particular situation. But you are right!
Thank you so much I just started 1 month ago and I’m going to put my 8553 on hold for now I appreciate the advice
That is really helpful. I am just starting out and I got advised to start an S-Corp off the bat. I'm glad I decided to do research.
Why don’t people talk about this? Is this some sort of taboo? This one video was EXPONENTIALLY more helpful than the majority of other videos I’ve seen about this issue. Best advice about LLC vs. S-Corp right here...I know what I’m going to do now lol.
Awesome! What line of business are you in?
Thanks man. I needed this explained to me since I was buying some properties.
Appreciate it. Merry Christmas!
Thanks for making this informative video! I've watched so many videos on this subject and didn't get the answers you gave in the first 3 minutes! I'm subscribing!
Evelyn I agree. Straight to the point and explained it so clear!!
Thank you for helping me not SCREW UP!
For Pension Contributions you can contribute more in a LLC but not if you are a S Corp where you split the profit between. Payroll and distribution
I needed to supplement my income, and I have an LLC, but things are slow. I wanted to get involved in work from home programs. However you need to be a partnership or an s-corp. But after watching this video it looks like I should wait, because I have very little profit this year.
@intrigue1976, you may want to look into selling on Amazon and eBay.
I could swear somewhere I heard along the way that if you want to file for S Corp. status you have to do it within 30 or 90 days of starting the business.
AV8R Tom If you want S Corp status from Day 1, you are supposed to file an S election form by the 15th day of the third month the business is operating (and you need a business entity, either LLC or corp). Even if you do not make this deadline, you can apply to the IRS for permission to retroactively make the election. You can also make the election for subsequent years by meeting this deadline, or seeking retroactive permission. Of course he is saying it may not be justified in the first year, or maybe even more than one year, for a start-up to make the election.
James Crenshaw 15th of march is the deadline for llc to switch over
The short version of the video:
1. Don't become an S Corp when you are starting out.
2. Don't become an S Corp when you are participating in passive income business activities like rental real estate b/c that income is not subject to self employment taxes. Keep passive income business in a LLC and not an S Corp.
Thanks for watching!
Surprised that Section 311(b) didn’t get mentioned here. One of the biggest disadvantages of an S Corp is property distributions to owners being treated as sold at the time of distribution. If your business has a lot of physical property, it is better to drop all of the physical assets into a partnership.
S corps are NOT for owning property.
This was very helpful. Didn't know that passive income wasn't subject to self employment tax.
And remember it's not passive income like "I make money while I sleep"
Hey man great video. My fiancé and I opened a training business LLC and now I’m being told that since she’s a 50% partner we are better off as an S Corp.. however watching your video gets me nervous because I am just starting out. Any help you can give would be great thank you
Is the passive income advice meant specifically for rental properties, or all passive income activity such as online digital products, etc.? Thank you for providing clarification.
Very good data, thank you! :)
Great video! What if I own a hair salon and the girls pay me rent each week. I have 10 stylists who pay $400/week. Would take be considered passive?
I am learning I have no idea what I am doing and need a CPA haha. As a youtuber, should I open an LLC?
That is a great idea, I wouldn't recommend getting a CPA, I would recommend checking out the best TurnKey solution for small s-corp sore even small LLCs. I seriously quit working with Nuance financial because I found such a better solution that's so much less expensive. here is my affiliate link to this service, but it will provide you bookkeeping, bookkeeping software, payroll, payroll services, tax planning, tax returns, and everything you need, for a monthly payment of around $200 or so www.xendoo.com/learn-more/?fp_ref=rob69.
As for the specific advice, there are two reasons why you might want to become an LLC, legal and tax. One, legal, people will use a LLC in order to protect themselves from certain liabilities attached to the type of work they do. The basic protection you will have is separating your personal assets from company assets if you were to have some sort of litigation or risk exposure. Quite frankly, you'll find that an LLC doesn't do a lot when you are the only owner and the one participating in the business when it comes to legal protection, if you feel at risk you'll want to look into insurance. to tax, when it comes to taxes, the only differentiation you will see is when you become a s-corp. Remember, you are taxed as a sole proprietor when you are just working as a freelancer, and you are a sole proprietor tax wise even when you become an LLC, unless you elect to become an s corp.
none of this is specific advice just for you, please seek professional advice, but I would recommend that if you are starting to make profits north of about 20,000, go to xendoo at my affiliate link and get your bookkeeping and payroll setup so that you can become an s corp.
Will an LLC get more write offs & better tax shelter than a Sole proprietorship?
Great info. Thank you
HEADBANGRR a sole proprietorship has no tax shelter or liability shelter. A sole proprietorship is usually what you file as when you are working as an IC automatically. The decision thereafter lies within picking between an LLC or Corporation. The sole proprietorship has no liability protection, meaning if you are sued for business related reasons, they can come after your personal assets for recovery of damages. As an LLC or Corp they cannot. The major differences between an LLC and an S Corp then lie within tax benefits. Consult a tax expert to fully understand the differences.
Thank you so much for explaining this!
😎
I was looking for this info. Thanks!
Hello Rob. Thanks for the video. I am an SMLLC startup and considering starting as an S Corp. I heard you mention in point 1 not to do it since you don’t know if your profits will be high enough yet for it to make sense. However, the only disadvantage I can find right now is that it will require more paperwork when filing. However, that’s seems like something worth taking on if I were to actually have enough profits in the business to use the 20% tax deduction plus pulling out my salary. I will already have payroll software and etc anyway.
Question: are there any other disadvantages of filing as S Corp other than filling out more paperwork and having a payroll service?
Thanks for your time!
Frank
this video was dope my G
I'm a real OG.... New balance shoes and big and tall shirts ftw...
Rob, Just LIKED and Subscribed. Question: I have a WY LLC holding company with three subsidiary LLCs in GA. Each GA LLC owns one property. If my WY LLC creates at GA Property management LLC to collect rents, find tenants and manage the three properties, how should the property management company be taxed? S Corp? Thanks. Love the channel.
Very good information! I have one question: what about passive income earned from other activities than real estate, such as through affiliate marketing? That’s OK with an S Corp. designation, correct?
How does an LLC become an S-Corp? I thought that an S-Corp was an election for C-Corp. to be taxed as a partnership. An LLC is already taxed as a partnership when there are two or more members.
Good info and very clear! Thank you!
If you are a US digital nomad contractor, and single owner S-corporation, earning 140k/year and qualify for the FEIE, which allows your first 105k to not be subject to income taxed, would the remaining 35k given to yourself as "distributions" be taxed?
Supper clear and helpful. THANKS!!!
Glad we can help!
Do you have an opinion on what we should do in our family: I have a small salon 10yrs old that is DBA and my husband is starting a food truck. We are going to protect ourselves with LLCs, but is there a way, and if so, do you think it is good idea to have an umbrella company that is an s-corp over both? We were hoping to be able to provide insurance for our family and pay ourselves a meager salary both taking advantage of the tax benefits of the s-corp.
I hear as an LLC you can file as an S corp? So why does it matter to become an s corp if you can do the same thing as an LLC?
“Becoming an S Corp” is actually an election for tax purposes. In order to elect S Corp status, your business has to legally be set up as an LLC or a Corporation. LLC’s without the S election are considered sole proprietors or partnerships (depending on if there are one or more members). When he says “becoming an S Corp”, he is referring to making the S election for tax purposes by sending in Form 2553.
@@Thetaxguy10000 sure, but that still doesn't answer the question. Thanks for the information though. Filling for llc then filling out form 2553 at tax season is way easier business structure then s-corp company. Either way as an llc you are considered self employed. At s corp you are an employee of your brought to life corporation.
@@heatncool what do you mean it doesn’t answer the question? Not trying to be smart here, I just legitimately don’t know how I didn’t answer the question. Happy to help if you’d like to rephrase. Form 2553 is a one time filed form to elect S Corp status. Once you file it, you’re taxed as an s Corp and you have to file an 1120-S, distribute K-1s, etc. moving forward. An LLC is a legal status. An S Corp is a tax status. If all you are is an LLC, then your default tax status is Sole Proprietor or Partnership. If you make the election, you can change your tax status to an S Corp. Does that make sense?
@@Thetaxguy10000 absolutely not. My question is the difference between an s corp business structure vs an llc filing form 2553 to be taxed as s corp (ps that's a tax status only) running an s corp is alot more difficult then an llc (filing 2553 for taxes) you haven't mentioned a single difference. However you are knowledgeable I can tell and are kind.
@@heatncool gotcha! I think the confusion here is that you’re looking at the S Corp business structure and an LLC filing Form 2553 as two different things. They’re the exact same thing. So, if your LLC decides to file form 2553, you have to abide by all of the S Corp rules (meaning you pay yourself a W-2 wage for reasonable compensation, file Payroll, are under 100 shareholders per the tax code, don’t have any ineligible shareholders, etc.). If you chose to do that, it is a One Time election that gives you all of the S Corp benefits (aka no payroll taxes on portion of income that isn’t included in your wage - as discussed in the video) and allows you to file as an S Corp for tax purposes. If you don’t make the election (file form 2553) or you don’t qualify under the tax code, then you can’t get those benefits and you’re not taxed as an S Corp. Either way you go, you are still an LLC legally. The question is just how you are taxed. Does that clear it up? Sorry for all the confusion. Happy to elaborate further or discuss qualifications/requirements for S corps if you’d like!
Which is better for day trading an LLC or S Corp? Thanks
How about investments such as gains from Options? And 1099 for my services/commissions?
So when would you want to become an S corp? I'm a home based media studio - and we freelance videography, photography, etc. for weddings, corporate gigs, bands, etc.
Should I make my company, Go Polaris Studio, just an LLC? or an S Corp? I have so much gear and assets.
The goal is as soon as your net profits are high enough, that when you shift 30-70% of it (up to your reasonable calculations) that the 15.3% tax is worth it. Making about 50,000 now? Well, if you took a 20k salary, that would mean 30k as distribution... 30k x .153 = 4590 in SE tax savings... SO. now the question is what's YOUR businesses solution for payroll and bookkeeping... If you do it yourself, you can do it on Quickbooks ONline, with Quickbooks payroll for about $100/month total.... then the tax return will be a bit more as well. HOWEVER - if your'e going to want a full service outsourced accounting firm, they're more money.... SO you do the conversion when it meets your company and operational goals.... remember, there are other things that might come into play as well - like hiring your kids, retirement plan goals etc.
@@FeedbackWrench Thank you so much for the indepth response - you are seriously making a difference in the world!
I guess it looks like the wise choice would be to just be an LLC until it makes sense like you said. It's probably misinformation, but the reason I was so interested in the S-Corp is because I had heard that while an LLC is one legal distance away from your own liability - (Scenario: bride goes nuts from her wedding movie I made her, and sues me for as much as she can. With no LLC, I could have my actual property seized. However, I have read that even with an LLC, you can have your property seized, and that only with an S-Corp is it "legally distant" enough to not have property seized in legal dispute.)
i understand this so much better! thanks
Great video!
S-Corps can be taxed in different ways, so why not just tax your S-Corp like a LLC so you don't have to pay yourself?
Hello I would like to know for Owner operator truck driver with company is better as LLC sole propiertor or S-Corp?
This is great information! How does the taxation work if, instead of rental real estate, you owner finance real estate? Is it still considered passive income? Thanks!
Thanks for making this video
What about when starting a trucking business? Should I start and LLC then later on fill out a 2553 form with the IRS when it’s time to file?
What about REITs? They provide passive income via real estate. So should they be in LLC and not in S-corp?
Not bad, still a financial derivative though and therefore has some correlated market risk. In other words, the supply and demand of the shares will impact their value... Fees, management risk and legal risks also come into play... But REITs are awesome as well! Just different from owning your own property
How about passive income under a *LLC* and you desire anonymity in a *S Corp* as owner of *LLC*
Great vid !! Would residual income from selling healthcare/Medicare plans from past years count as “passive income “? Thanks
Hello, I was thinking about opening 3 different businesses. I was trying to figure out which one would work for all(either an LLC or S-corp). What I wanted to know was for an S-corp, we'd have to pay ourselves with reasonable compensation. In order, to be taxed lower. Reasonable compensation being "salary". But I'm confident that one of my businesses will make more money then the others. Meaning, I'd would be making more profit regardless of what i put for reasonable compensation for the other two if I chose to do s-corp. Would that be a problem? Can I make one business an LLC & the other s corp? And can I change from an S-corp to an LLC or vise versa?
Wow amazing video but too late for me because I already formed a Corporation S. Is there a way to convert it to an LLC?
This was very helpful
What would be in general the best type of LLC or other if I am a 1099 contractor making more than 200k?
Hey, do you know any good resources for US Citizens moving abroad who want to setup an S-Corp?
Do you think a small Wireless Internet Service Provider would count as a passive income for this?
So you are saying that the s corp converters all of your income from being subject to self employment tax to a split, however it is backwards when you have rental real estate that is already has tax advantages you don’t want to split that.
yes - don't put rental real estate into an S-Corp.
I build houses from the ground up. Should I have taxes as an S. Corp?
If getting started, if making lots of profits, should i assume. So not about getting started, more about profit amount i assume. Would like to know that usual profit threshold to make the jump
THe key is to make sure the amount saved in taxes (distribution amount *.153) is greater than the cost of compliance (getting payroll, 1120s tax return, accounting, documents etc). Usually that 40k is the low end where it makes sense.
What if i have w2 job and get 60k annually, I'm just starting a LLC, does it make sense to be taxed as s corp? or just leave it as sole prop? I might make 30k annually with the LLC
Sounds silly, but how are you spending the cash? It might be a REALLY good idea to open a SOLO 401k with Vanguard and make massive employer and employee contributions with your llc. If you don't want to invest it, then S-Corps often make sense RIGHT around the point your at. Basically, you're bringin in 30k, paying 15.3% tax on all of it - but what if your salary should be, like 15k? That means you've now saved like 2300... which isn't huge. but in some states that adds up faster.
I would say it depends on what your growth will probably be, what you're goals over the next couple years would be etc.
don[t convert and then try to undo it, measure twice cut once.
@@FeedbackWrench thank you for taking the time to answer me, I already have 401k with my job and I contribute the max, im opening a online furniture store, so i would making around that amount next year, I’ll send the form to be taxed as s-corp then, thank you so much for your time. I really appreciate it.
Thank you for this! I have a related question that I can't seem to get a straight answer on. I run a photo studio where I rent out my space by the hour. I do not own this property, however my accountant filed this income under schedule E rental income. In this case, is an LLC the way to go? Thank for the help!
I’m a sole proprietor where my income is starting to get pretty high. Am I going to have to come up with other people so I can have a board?
Thank you
hello, i have an LLC company in Delaware and i want to close it. So i filled required forms and sent it. My question is, i wrote 10 of July to closing date, but my forms sent there in 7 of July and now the date was past and nobody do anything my forms. Is this a problem? I really don'T know what to do i'm worried. Thanks..
Very helpful! Thank you!
Very helpful. Thank you
So so for blogging and UA-cam I wouldn't need an s corp because that's passive income, correct?
The implication of the first point is that you would start as an LLC and then, when the tax savings justify it, migrate to an S Corp. If that is true, does someone simply file the proper forms to be taxed as a corp, or does the business change it's structure to become a corporation?
We all start out taxed as a sole proprietor. LLC's start out taxed as a sole prop, and before we make a legal entity as an LLC, we are a sole prop. So you will automatically start out taxed as a sole prop (which people, as you have, call an "LLC") An LLC is either an LLC taxed as an s-corp or an LLC taxed as a sole prop (which is a schedule C). So yes, grow into the S-Corp until the savings beats the bureaucracy.
Great information
I do door to door sales and I’m 1099 . Made 14000 so far this year should I be a Scorp.?
If I made $40,000 on my first wholesale deal what should I do? I know I’m not supposed to put it in my personal bank account..
Get a business bank account asap. Then put all income in there and all bills through that. File for a business and get registered so you can get a business bank account. That's the FIRST STEP no matter what.
Don't commingle the funds. YOu need to keep records of income and expenses for the business, and a separate bank account tends to make that the most simple when you start.
How do I file and get registered? Through an LLC? I really want an S-corp because of the tax benefits
Please respond 😩
Is it just me but I don’t understand why you can’t put rental properties under S-Corp
Ker Kare you can, but you’d be increasing your taxes. Passive income from a rental property is not subject to social security or Medicare. The only tax you’re mitigating with an s Corp is social security and Medicare. You would actually be screwing things up by placing into S-Corp
Great video thanks
You're welcome! Consider a sub or a tip at our patreon to keep my kids fed.
Awesome insight!
Quick Question; In 2019 I earned about net 30,000 from my S-corp. I am married with 2 kids. I am not getting any earned income credit or child tax credit. Is there any way to get earned income credit or child tax credit for 2019? If not, what should I do so I don't have this issue for 2020? Is there any benefit for me to switch to LLC?
thanks for that video!
Thanks for watching
Thank you sir!!!
Absolutely, what kind of business you run?
So I'm in the buy and hold for rental income. I came across this video after the banking institution I was setting up my llc single member account with insisted I had to choose either an s Corp, or c Corp. well that didn't set right with me so I went in search of answers. I was blessed to come across your video which was precise and to the point. I went back in there with full assurance and asserted my findings. The dear lady went and got her manager who pointed out to her that she had to select single member llc. She apologized for the over site. I can't thank you enough for being direct, to the point! Exactly what I needed to hear without a lot of confusing extra information. God bless you sir!!!
That's very helpful and clear. TX
Very helpful thank you!
Thanks!
How does one unelect S-corp?
How about when the LLC membership interests are held in a revocable trust?
jaschu09 yep!
does that mean that All passive income business doesn't have to pay self-employment taxes? I have a vending machine company and that's passive income.
No no no. It’s not that kind of passive
You should consult with a business/tax attorney because everybody's situation is unique.
I watched this video way too late... :'( I set up an S-Corp even before having profit and now I don't know if I can go back.
Don’t worry, it’s usually a forgiving thing if you just make sure you don’t commingle your funds and you try to make it right.... also, go make some sales!!!!!
@@FeedbackWrench so there’s no way to un-elect s-Corp?
What about Recruitment and Staffing firms?
Ok so I opened an LLC in March. I’m going to make about 100k this year. Should I keep the standard designation or be taxed as an S Corp?
Anthony Gordon I am guessing the company wants you to sign up as a client, rather than give answers to specific situations on You Tube. But $100K is plenty of profit to justify making the election, but then you have to consider what is the amount of salary you must pay yourself. Only when you consider both profit and salary can you answer the question
@James Crenshaw, you are giving great detailed answers. Thank you!
This is great thak you for the info!
What is usual profit cut off threshhold to go c2c
That was a good tip!
This video will not load on my phone computer or any device. I can watch any other videos, but this one is having major issues. Could you re-upload it?
How about now
Amazing
Thanks, you save my life.
valeria aguilar glad it was helpful - we love shares to any other entrepreneurs you might know
It's amazing how many videos keep saying, "...become an s-corp." This is why people remain confused. "Becoming an S-Corp" is not a thing. What you are doing is "electing to be TAXED" as an S-Corp versus as a sole proprietor or other tax category. Regardless of which you elect to be taxed as, you still remain the entity you are registered as (sole proprietor, LLC, Corporations, etc).
This is what confused me.
Wow good video
What if my "passive income" is my main source of income? My blog generates a few dollar by affiliate links or I have an online store, something of that nature. Basically, I do not have traditional employment but freelance, does this still apply? I'm just starting out, so I would have to assume you are going to direct me to your #1 anyways. :) Thanks!
Great question. You have to separate what business people call "passive income" and the IRS. They have nothing to do with each other. The IRS defines passive income very specifically. In your case you are facing the same situation as a regular business here.
First of all just found your site and Love! Your videos. I have a e commerce buisness that I want to convert to a s corp once I reach the 40k a year its a llc right know, but I would like to invest the profits into rentals. Should I create to separate businesses, one for ecom s corp, and one for real estate LLC. Thank you.
Great question. YOu need to do it right... but own Real Estate in a separate LLC (not S-Corp). Here is a top-level set of ideas you can use to lower your taxes. ua-cam.com/video/g0PdY4bdcqM/v-deo.html Remember, never waste a dollar to save a quarter in taxes.... real estate is a great tool, and legitimately renting out to your S-Corp as the land lord is a great strategy... so long as it makes sense for your s-corp to actually be a legit tenant rather than having someone else pay you rent.
So is there any major differences for an LLC filing as S corp or C-Corp electing S-Corp status? Either way you are an S-Corp at the end of the day.
Dad I do not believe you can choose to be taxed as an S Corp under a C Corp. The entire difference between the two is that C Corps are usually bigger businesses that can pay a whole lot of dividends to numerous shareholders. Now, a C Corp, you also have to remember, gets double taxation. This is because both your salary paid out to you by your C Corp and the money that the C Corp retains are taxed. The business has corporate income tax and the owners have personal income tax. An S Corp avoids double taxation.