Thank you so much for the advice! You explain it in a way that makes sense. I do have one question. I am located here in NE, and I do some landscaping/snow removal as some extra money. I want it to be legit, would you recommend an LLC filing as an S Corp?
Thank you for the video. I have a SMLLC and I'm getting ready to pull the trigger to an S-corp for 2024. I've always done my bookkeeping on excel for all my business expenses, profits losses, estimated taxes paid, etc…. on Turbo Tax. However, I think with an S-Corp I may have to enlist a CPA to do my taxes and monitor my responsibility for the S-corp. Especially with the certain tax form you mentioned needing filing by 31 Mar rather than by 15 April along with my personal taxes. Any advise would be appreciated.
I agree for many people, doing the S Corporation taxes crosses the line (there isn't turbo tax etc for it). Generally it makes sense to switch when you save enough on taxes to make it worth it, typically when the taxable business profits that you pay yourself are in the mid to high five figures.
Hi, I am one owner in my s corp. I have a question related to reasonable salary, I do a corp to corp as an IT consultant 40 hrs a week and the Company A will issue 1099. Say if I make 165k a year what is the reasonable salary that I have to take? is there any kind of formula that is used to calculate how much distribution and how much salary and how often I can make the distribution? for salary I could do weekly/biweekly or monthly.
Right it is a good question that doesn't have a clear answer from the IRS. Generally the rule of thumb is to look at the % of time you work on the IT consultant stuff (as opposed to running the business as the owner), and think about what you would pay someone else to do that work. Mostly you need to be able to back it up with some argument. People tend to get in trouble for super unreasonable salaries like $10K a year for a lawyer. Also, you can pay yourself weekly, monthly, quarterly -- it is up to you.
@@ElizabethPW thank you for your reply. this will be my active, mostly 100% I am not sure how much to put on the owner managing. is it fair to go example $35 per hr on w2 out of $85
Really what I would do is come up with an argument, bc that's what you would give to the IRS. Like find some website or report that says the hourly rate for that job on average, and then state that you are working x hours per week doing that "job" for your biz (or even track that time).
Hi, thanks for a great video! I’m starting my own business, I’m a electrical contractor, should I start my business with a s corporation or sole ownership?
Really depends if you have employees, need tax planning, and/or are not comfortable with the risk. Those are the big factors in having a Corp vs sole proprietorship.
Not sure if this is in your scope, but in regards to a SMLLC w/ S-corp election... feeling very confused as to when expenses should be paid from the business account versus personal account. Any insight would be much appreciated.
Generally every business expense gets paid for via your business account. The only exception is if it is something where the business reimburses you, just it would with an employee -- like buying a plane ticket for a business trip.
If you're not making money from an S-Corp and if the corporation is not profitable, how can you pay yourself? If you have to steadily put money into the S-Corp to pay bills, is there any special way of going about this, or is it just as straightforward as transferring funds to the corporate account?
You only have to pay yourself if you have profits. The idea is that if you have profits, you have to pay yourself part salary and part distributions. You can't do 100% distributions.
If I hardly work, how can I prove that? The idea of an s corp for me seems great because my business is set up to , for the most part, run itself. But in the event of an audit, will I be forced to pay myself a higher salary without proving that I basically do little to no work? I'm a bit confused on that. I'm afraid my distribution to salary ratio will be very skewed but what can I do when I put at most an hour or two a week into my work? Do I need to be paying myself thousands of dollars per hour of salaried work?
You have to prove that your salary is reasonable. So, if you could prove you work only 4 hours a week (or whatever) than a low salary could be reasonable. But it would be your burden to prove
Hello, thank you for your wonderful video! Last year, I opened an llc with an S-corp election but was unable to earn any income through it. I haven't been able to convince clients in my field to pay me as a 1099 contractor. Is it too late nullify my llc and scorp to avoid having to file? (1120s/K1/etc)
Hello I have a question, I created Scorp last summer with my previous CPA recommendation, and I have a new CPA who is recommending that I have to buy some shares of my business, to have ownership. I never heard that before, should I do it?
You do need to make a "capital contribution" to "buy" shares of your corporation -- that helps to show that you have a legit corporation. The capital contribution could be cash, but it could also be other things like if you converted a sole prop to a corporation it would be the value of the sole prop, intellectual property, etc. Many times it is a combination.
Hi! Thank you for such a great video! Quick question - My husband and I are forming and S-corp. He has a 1099 job as a licensed Loan Officer, PLUS we have a side business (LLC) that is a real estate investing company. Can our S-corp over both of these incomes?
You could do that. But generally I would put anything with large assets, like real estate, into its own LLC or Corporation so those assets are protected from other business projects.
@@ElizabethPW The LLC we have is what all real estate stuff would go through. And then my husbands 1099 and the salary we pay ourselves from the LLC would both go under the S-corp for tax purposes. (If that makes sense? Im not too well versed in all this stuff lol)
Ah you can link up the two entities (have one of them own the other) and have just one of them pay you, but I'd have someone (maybe accountant could do this) make sure they are linked up correctly this works right
Will a general builder licensed by the CSLB need a professional corporation? Or would they be fine with filing for “Articles of Incorporation - CA Corporation - General Stock”
My understanding is that even though builders/contractors are licensed under the business and professions code, there are special exceptions so contractors can have regular LLCs and corporations (as long as they follow the other CSLB licensing rules, of course). But the best bet is to check with your licensing board to confirm.
Hi, I just have my fictitious name forms fill as the business is conducted by married couple and my ein number as a corporation, I need to fill my forms for a corporation company or can do it for a LLC?
If your business is legally a corporation, then everything needs to be filled out as the corporation (otherwise you lose the liability protection). If it is an LLC-taxed-as-a-corporation, then you'd fill it out as an LLC.
Hm I'd say it is about profits, not about gross income or distributions. My rule of thumb is around $50K profits (or $4K/month of profits) before I'd switch.
As always. Much appreciated. I love the simple explanations given here. Thank you.
welcome!
Going through a setup of an S Corp now. Your videos are so helpful
Great to hear!
Thank you so much for the advice! You explain it in a way that makes sense. I do have one question. I am located here in NE, and I do some landscaping/snow removal as some extra money. I want it to be legit, would you recommend an LLC filing as an S Corp?
Thank you so much
Not sure if you need an S Corp or an LLC (or C Corp)? Here's the video for you: ua-cam.com/video/M2rD-wUcCrc/v-deo.html
Great job. Thank you!
This is very helpful. Thank you!
Glad it was helpful!
Thank you for the video. I have a SMLLC and I'm getting ready to pull the trigger to an S-corp for 2024. I've always done my bookkeeping on excel for all my business expenses, profits losses, estimated taxes paid, etc…. on Turbo Tax. However, I think with an S-Corp I may have to enlist a CPA to do my taxes and monitor my responsibility for the S-corp. Especially with the certain tax form you mentioned needing filing by 31 Mar rather than by 15 April along with my personal taxes. Any advise would be appreciated.
I agree for many people, doing the S Corporation taxes crosses the line (there isn't turbo tax etc for it). Generally it makes sense to switch when you save enough on taxes to make it worth it, typically when the taxable business profits that you pay yourself are in the mid to high five figures.
Great video. Is there a ratio of your overall distribution or salary that is a red flag to the IRS?
It's not about a ratio or percentage -- it is about whether the salary is "reasonable" if you paid someone else to do that job
Hi, I am one owner in my s corp. I have a question related to reasonable salary, I do a corp to corp as an IT consultant 40 hrs a week and the Company A will issue 1099. Say if I make 165k a year what is the reasonable salary that I have to take? is there any kind of formula that is used to calculate how much distribution and how much salary and how often I can make the distribution? for salary I could do weekly/biweekly or monthly.
Right it is a good question that doesn't have a clear answer from the IRS. Generally the rule of thumb is to look at the % of time you work on the IT consultant stuff (as opposed to running the business as the owner), and think about what you would pay someone else to do that work. Mostly you need to be able to back it up with some argument. People tend to get in trouble for super unreasonable salaries like $10K a year for a lawyer. Also, you can pay yourself weekly, monthly, quarterly -- it is up to you.
@@ElizabethPW thank you for your reply. this will be my active, mostly 100% I am not sure how much to put on the owner managing. is it fair to go example $35 per hr on w2 out of $85
Really what I would do is come up with an argument, bc that's what you would give to the IRS. Like find some website or report that says the hourly rate for that job on average, and then state that you are working x hours per week doing that "job" for your biz (or even track that time).
Hi, thanks for a great video! I’m starting my own business, I’m a electrical contractor, should I start my business with a s corporation or sole ownership?
Really depends if you have employees, need tax planning, and/or are not comfortable with the risk. Those are the big factors in having a Corp vs sole proprietorship.
Not sure if this is in your scope, but in regards to a SMLLC w/ S-corp election... feeling very confused as to when expenses should be paid from the business account versus personal account. Any insight would be much appreciated.
Generally every business expense gets paid for via your business account. The only exception is if it is something where the business reimburses you, just it would with an employee -- like buying a plane ticket for a business trip.
@@ElizabethPW What about hybrid expenses that are both personal and business (gas, phone, internet, etc.)?
If you're not making money from an S-Corp and if the corporation is not profitable, how can you pay yourself?
If you have to steadily put money into the S-Corp to pay bills, is there any special way of going about this, or is it just as straightforward as transferring funds to the corporate account?
You only have to pay yourself if you have profits. The idea is that if you have profits, you have to pay yourself part salary and part distributions. You can't do 100% distributions.
If I hardly work, how can I prove that? The idea of an s corp for me seems great because my business is set up to , for the most part, run itself. But in the event of an audit, will I be forced to pay myself a higher salary without proving that I basically do little to no work? I'm a bit confused on that. I'm afraid my distribution to salary ratio will be very skewed but what can I do when I put at most an hour or two a week into my work? Do I need to be paying myself thousands of dollars per hour of salaried work?
You have to prove that your salary is reasonable. So, if you could prove you work only 4 hours a week (or whatever) than a low salary could be reasonable. But it would be your burden to prove
Hello, thank you for your wonderful video!
Last year, I opened an llc with an S-corp election but was unable to earn any income through it. I haven't been able to convince clients in my field to pay me as a 1099 contractor.
Is it too late nullify my llc and scorp to avoid having to file? (1120s/K1/etc)
There isn’t really a way to nullify. You’d just file the termination and then file tax returns with zeros.
If I am a SMLLC w/ S-corp tax status election, do I need to follow the requirements for an S-corp (e.g meeting minutes, etc)?
You'd follow the rules for LLCs, except for tax stuff
Do I need to file the meeting minutes with California? How do I do that?
No, you don't file that with the state -- you need to keep in your records in case you need it for a bank, a lawsuit, or a future owner
Hello I have a question, I created Scorp last summer with my previous CPA recommendation, and I have a new CPA who is recommending that I have to buy some shares of my business, to have ownership. I never heard that before, should I do it?
You do need to make a "capital contribution" to "buy" shares of your corporation -- that helps to show that you have a legit corporation. The capital contribution could be cash, but it could also be other things like if you converted a sole prop to a corporation it would be the value of the sole prop, intellectual property, etc. Many times it is a combination.
@@ElizabethPW Thank you so much for your response, but how should I do a capital contribution,?
Hi! Thank you for such a great video! Quick question - My husband and I are forming and S-corp. He has a 1099 job as a licensed Loan Officer, PLUS we have a side business (LLC) that is a real estate investing company. Can our S-corp over both of these incomes?
You could do that. But generally I would put anything with large assets, like real estate, into its own LLC or Corporation so those assets are protected from other business projects.
@@ElizabethPW The LLC we have is what all real estate stuff would go through. And then my husbands 1099 and the salary we pay ourselves from the LLC would both go under the S-corp for tax purposes. (If that makes sense? Im not too well versed in all this stuff lol)
Ah you can link up the two entities (have one of them own the other) and have just one of them pay you, but I'd have someone (maybe accountant could do this) make sure they are linked up correctly this works right
Will a general builder licensed by the CSLB need a professional corporation? Or would they be fine with filing for “Articles of Incorporation - CA Corporation - General Stock”
My understanding is that even though builders/contractors are licensed under the business and professions code, there are special exceptions so contractors can have regular LLCs and corporations (as long as they follow the other CSLB licensing rules, of course). But the best bet is to check with your licensing board to confirm.
Hi, I just have my fictitious name forms fill as the business is conducted by married couple and my ein number as a corporation, I need to fill my forms for a corporation company or can do it for a LLC?
If your business is legally a corporation, then everything needs to be filled out as the corporation (otherwise you lose the liability protection). If it is an LLC-taxed-as-a-corporation, then you'd fill it out as an LLC.
@@ElizabethPW thanks so much for your help, and for make this videos they are very helpful. Good bless you.
Hello!! I've heard that I must make at least $60k with $20k of distributions for a S Corp to work financially. Is this true?
Hm I'd say it is about profits, not about gross income or distributions. My rule of thumb is around $50K profits (or $4K/month of profits) before I'd switch.
@@ElizabethPW Got it. That's a very helpful benchmark. Thank you!