CPA EXPLAINS Tax Differences: LLC, S Corp, C Corp, Partnership, Sole Prop

In this video, I'm breaking down the tax variations among sole proprietorships, LLCs, partnerships, S corporations, and C corporations. We'll use a $100,000 profit scenario to see how each structure impacts your social security taxes, Medicare taxes, federal income tax, and state income tax. Discover why an S corporation might be your best friend in tax savings, while C corporations, despite their allure, may not be ideal for smaller businesses due to double taxation.
If you find this video helpful, hit that like button and share it with fellow entrepreneurs. Drop your questions in the comments, and I'll answer them. For a deeper dive into tax optimization, explore my comprehensive course on my website. Remember, mastering taxes doesn't have to be daunting-I'm here to guide you toward financial success!
🔗Links to my Website and Course:
🌐 My Website: navimarajcpa.com/
👨‍🏫 Enroll In My Course - Small Business Taxes: From Knowing Nothing to Savings Thousands: navimarajcpa.com/learn/
📁 Setup your LLC or Corporation for FREE 📁
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⏱️ Video Time Stamps ⏱️
00:00 - 00:39 Intro to Tax Differences for Business Entities
00:40 - 1:08 Intro to Navi Maraj CPA
01:08 - 02:35 Overview of Tax Classifications
02:36 - 06:44 What Taxes do Sole Proprietorships Pay?
06:45 - 09:01 What Taxes do S Corporations Pay?
09:02 - 10:52 What Taxes do Partnerships Pay?
10:53 - 15:20 What Taxes do C Corporations Pay?
15:21 - 16:05 Adjustment to Gross Income (AGI) for Self-Employment Tax Paid
16:06 - 18:15 Resources to Calculate Your Own Taxes
📘 Resources 📘
Income Tax Calculator: www.ameriprise.com/financial-...
Federal Income Tax Brackets: www.nerdwallet.com/article/ta...
State Income Tax Rates and Map: taxfoundation.org/publication...
2023 Capital Gains Tax Rates: www.nerdwallet.com/article/ta...
‌
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This video was created for informational purposes and it is not to be construed as legal and tax advice specific to your unique situation. Some of the links above are affiliate links which means that if you purchase a product or service with the provided link, I may receive a commission with no additional cost to you.
© Navi Maraj CPA PLLC. All rights reserved.
#LLC #SCorp #CCorp

[@ElectroTree01]

The best explanation yet! The only thing I didn’t see you explain was retained earnings and how they are taxed differently and how a different structure(c corp) can reduce tax on retained earnings.

[@edgonzalez186]

Also... is GREAT to have a CPA making a video on the subject... Seemed like attorneys had taken over tax related videos... just to end up suggesting trusts, holding companies, series LLC's... and the "words" Wyoming, Delaware, Nevada, anonaminity.... for us regular folks with our hustles that just want to make some sort of reasonable living.

[@nazimkabiri]

Thank you so much, the best video I have ever watched that answered all my questions regarding the taxation rules on different types of entities. It helped me convert my LLC to an S-Corp and save on taxes. God bless you!

[@kyg626]

Thank you for breaking this down in such an simple and easy way to understand. A+ video!

[@mindmaven5432]

Wow. I wish I could have had this clear of an explanation 20 years ago. Great job. Thank you.

[@logangill8036]

Best video I’ve seen on this topic! Thank you!

[@DarrylBodkin]

This is great information. Thank you for your service!

[@adibadjugelieva8307]

I liked the way you explained. Thank you so much!

[@twoupandadog5893]

Explained very well, thanks!

[@user-wt3ie5sc8y]

Appreciated your channel so many helping tax information

[@E-comGirl_Informs]

This is great but will have to rewatch this video at least 2 more times. Omg my head hurts after listening to all those numbers lol. Great information nevertheless. Got yourself a follow

[@neddoh4300]

Good basic info. As a lawyer, it leave out disadvantages/ advantages of each entity

[@AshishGupta-gq8hv]

great video.. easy to understand..

[@rmvfish]

Well done, finally understand this

[@make725daily1]

This video is genuinely inspiring! -- "Embrace your aspirations with unwavering determination."

[@NaviMarajCPA]

Well, thank you!

[@YudiJ]

Thank you for this video, helped cleared a lot of doubts. Do you have the spreadsheet where I can download it or use it?

[@user-py7wp6nw9h]

love it. Thank you!

[@legacymoney]

Good explanation! Some things that often get overlooked are the filing of the Schedule K1, bookkeeping costs, legal fees and filing fees.

[@darthenx2585]

It's honestly all water under the bridge. All those fees just count as deductions anyways. If your business is making good money you will be looking for any and all ways to spend money on for the business to reduce your net profits.

[@legacymoney]

Deductions are still expenses...

[@laizaashraf4770]

Great explanation.

[@ESerrano]

great breakdown! Worth a comment for the algorithm.

[@NaviMarajCPA]

Thank you!

[@user-ql2jr8ut1e]

Thanks for the video. Helped a lot. Regarding your course, are those tax strategies still valid?

[@marcoduenas205]

Very helpful thanks

[@Eden639]

Súper useful, thank you !

[@NaviMarajCPA]

You're welcome!

[@rgsyed]

Can also add Trust into this equation . For property management business

[@adamakomou7318]

Very great explainer video. Easy to follow and understand. I would just suggest that you don’t keep the mouse on the cell’s figure while explaining. It prevents a continuous visual focus during the video.

[@500KLA]

Great video. Could you explain how and why some CEO’s give themself a $1 salary and how’s that’s beneficial. Thanks!

[@amarekefyalew4385]

Thanks for such simple explanation! Is capital gain applicable for all type of business formation if the sector is in real estate business?

[@davidcronin3950]

Love the video. But what about the potential benefit for section 1202 $10 million capital gain exclusion when selling the company? Please create a follow up video to discuss this

[@Jay-es3vm]

Very thorough! Thank you! Your side by side approach helps make it clear.

[@NaviMarajCPA]

You’re welcome! Glad it was helpful for you.

[@Jay-es3vm]

@@NaviMarajCPA Are you taking on any new clients?

[@NaviMarajCPA]

Unfortunately, not at this time but if you shoot me an email I will eventually respond with some referrals.

[@Jay-es3vm]

@@NaviMarajCPA Understood.

[@RICONY]

@NavimarajCPA For trading in Florida would it be wise to create an LLC that is then under an Scorp? Whats the best setup for trading in the market?

[@Knowledgeispower2000]

Thank you. I can't believe I finally understand this nonsense created to confuse all of us.

[@lchristianrojas3713]

Great video, is there any material you recommend I read to get more intel on taxes? I am new and want to be able to help people like me.

[@edgarandrade5820]

Need you to show example based on highest tax bracket like 500k or greater.

[@akcoop]

Excellent vid 🔥🔥🔥

[@user-cx1vl7bz7l]

Hi great video how does payroll deduction fit into all of that?

[@franknvett]

Awesome job

[@giancarlomossi4713]

awesome! ty!

[@qbantek]

@NaviMarajCPA you mentioned the associated taxes when taking a dividend from the C-Corp, but you did not mention how would the distribution from the S-Corp would be taxed, assuming John does not want to leave $60K in the company's account.

[@misterj3133]

They would be taxed at his individual tax rate. He should have clarified that.

[@SuspiciousAccountBeepBoop]

@@misterj3133 So if John took $40K salary and $60K dividend taxes would be the same as the LLC, right? This is the real "apples-to-apples' comparison. Of course taxes are lower if you get $0K vs $100k. I guess I'm not really sure what the true benefit of an Scorp is.

[@JtotheRizzo]

I have a SMLLC right now. As a reak estate professional, what would you recommend as my tax status be? Leave it as a Sole Proprietor, or S-corp or find another person and form a MMLLC/Partnership?

[@agnesusoro]

A MMLLC can elect to be taxed as an S-Corp. Would be nice to see a column with those numbers although I image it would be the same as the S-Corp column. Just so its understood that there are other options for MMLLCs.

[@racquelpouchet7842]

Question: Should you start at LLC is company makes less than 100K then covert to S Corp when profits increase?

[@user-yl7li8lk4z]

@NaviMaraj- when (gross income wise) would an S Corp still make sense in a state like TN? Single member LLC here (newly formed from S Corp)

[@KnowYourRights2]

This video is well done and easy to follow. Is there a way that I can get a copy of the spreadsheet?

[@shawnnea9859]

How would it be for an incorporation

[@wacobeer6469]

A C-Corp does not pay social security or medicare taxes UNLESS they have employees or unless the owners take draws (which looks like a salary payment). Also... a capital gain only happens when the business (or some of it's property) gets sold. Bottom line.... A C-Corp pays it's own taxes. S-Corps pass on their tax liability or losses to their owners and are therefore taxed at the owners' personal tax rate. Don't be a sole proprietor. Also be a sole C-Corporation OWNER if the company is profitable. If the company is not profitable, then it pays no taxes but the owners don't get credit for the company losses. Do S-Corp if the company is NOT profitable (yet). Choose WHO gets taxed (you or the company) depending on which results in a lower overall tax burden. If you have multiple owners, the same things apply, but are more complicated. Owning a business is MOSTLY better. (I'm not a CPA, but I've run businesses my whole adult life).

[@AscDrew]

But if the LLC is not profitable then there is no SS or Medicare taxes to ne paid; and you still write off the losses. Right?

[@wacobeer6469]

@@AscDrew Better to discuss that with an accountant for your situation.... but all expenses are deductible from revenue (the result is a profit or loss) which determines taxable income. SS and Medicare (if paid) are business expenses. So one can only consider an actual paid expense as actual expense. You can't deduct an expense you didn't incur. (If I'm wrong, I want to know!) Also I don't like the term "write-off" as it presumes something that is not true. So called "write-offs" are simply business-related expenses that reduce taxable income. Basically all business expenses, including payroll and related expenditures. But remember that business expenses for one business are revenue to another. That's why the system works. Somebody eventually earns an income and pays tax on it. Meanwhile, the whole chain of cash flow has employed people, etc.

[@victoriadedicova]

Well. You can also do equity repayments instead of salary or dividends. 20% in fed taxes is still a lot.

[@wastedump-hg4nd]

Would be great if you can make a video on how these profits flow into your personal return and are taxed

[@AscDrew]

They are taxed as ordinary income (same as a w2 wage) for LLCs, & S-corps, which is why they call them pass-thru. You don’t have to file a separate tax return for the entity. It’s just another line item of Income on your Fed 1040 (from your schedule C/business). But if your business expenses (including assets purchased and depreciation, etc) exceed your income, then you have a Net Loss and it is a Negative Number in your Income column, thereby reducing any other type of income (such as dividends, W2, pensions, etc). My understanding of it. Not tax or financial advice.

[@douglastarvestad186]

I have a question. Considering personal cash flow the sole prop and general part, the individual gets taxed at a personal level and they get those funds. And a C-corp the owner takes a salary and the C-corp gets taxed on the $60m and if the owner wants those funds the need to take a distribution, they can't just pulled money from the register like a sole prop and gen part can do. But what you don't show is, how does the S-corp treat the $60m that was taxed on the corp level? Don't they have to take a distribution also? And they don't get taxed then, correct? And if so, can't they skip the salary and take a distribution instead? I work at a bank and I see a lot of S-corps and this seems to be the norm.

[@greateasyday]

Hi Navi, I rehab real estate multifamily properties for rental investments and just starting to develop apartment for-sale condos. I have come across CPAs and tax attorneys online that stated that I should form a C-Corp to avoid flagged as a dealer on my 1040 schedule, and get hit with up to 37% in federal taxes. They noted that rehab and development are active businesses. Is there any merit to their thesis to form an LLC taxes as c-Corp over an S Corp? (With my rehab rentals, I have been capitalizing most renovation / project costs and taking a salary albeit paying self-employment taxes.)

[@BuildWealthwithAraceli]

great explanation, I have a question, I am Canadian and I own a C-corp as I have a business in the USA, what happens to social security and Medicaid as I don't have status in the US

[@mamirozay]

can u upload a link of excel spread

[@stevegallo2170]

Are we able to have a downloadable version of this Excel example?

[@10gstreet]

YES!!! , Buy the course 🤣

[@anthonyreid1435]

May I have a copy of that spreadsheet? or be sent the formulas to input?

[@gabeballinger375]

What do you charge to set up a CRNA LLC (S-Corp)?

[@soniaferrer-ponce]

Thanks!

[@NaviMarajCPA]

You’re welcome! Appreciate you 🙏

[@msorobia]

What if you reinvest the profits of the C-Corp?

[@MSROYA1]

Hello how can I get the spreadsheet?

[@jackiejuhaszify]

I have uploaded the free “help” and it doesn’t respond to any entry. What do I do wrong.

[@zayagilana8760]

Curious about the ??? and $9247 ?! is that another entity or just a thumbnail? Thank you. It is a great video.

[@milkovivaldi]

I'm Italian resident in Malta and would like to open an LLC to do trading on the stock exchange. Tax rate is zero right? I don't work in the US but only abroad or on the stock exchange

[@Darkest-Kn1ght]

I'm curious about your s-corp numbers, specifically, the numbers related to the $60,000. I can't figure out how $60,000 results in the same numbers as the $40,000 in the s-corp column. I'm getting $3,720 for Social Security and $870 for medicare. Does the s-corp ONLY pay the same amount as what the employee has to pay without regard to the fact that it's $20,000 higher? In other words, does the s-corp only have to match the employee's social security and medicare contributions instead of paying the same percentages as the employee?

[@franciscotorresc]

The big problem with the Corp S is that on a personal level it affects you a lot, since it distributes dividends or not, you must pay for them in your personal taxes and your health insurance skyrockets among other things

[@WendiMontano1986]

My questions is a c corp has a profit of 50k the owners do not want to drawn that money from c corp still he has to pay I his tax return if 1099 div was issued ? Because he said if you want to delay the dividend tax for later , means u can leave alone the 50k and do not issue 1099div and they don’t need to be report it u til he takes that 50k im future year?

[@relaxedclub9425]

I saw your other video that shows s-corp can be charged capital gains tax, how come you excluded it here? Or, did the rules change?

[@JCM532]

Navi, I'll be moving to Nevada and changing career to stock/crypto trader. Is S-corp the best option for me?

[@edgonzalez186]

Converting a C-corp to an S-corp is a tax issue, or a State Department Issue first?

[@dragonpower974]

Regarding the Sole Proprietor tax, if the business profit is $1,000,000, do we still use the same formula to calculate the social security and Medicare taxes? For example: $1,000,000 x 0.153 = $153,000.

[@superkd7030]

SS is caped at around 150k. And there's extra Medicare after some amount, 250?. You can google the exact numbers for 2024.

[@MarinaWaveRider]

Why would a single owner opt for an LLC over S Corp if the tax savings are so significant with the S Corp?

[@make725daily1]

You're a pioneer in your domain! 🚀 -- "Doubts of today are the only roadblocks to realizing tomorrow's dreams."

[@keitth6935]

Define "paying yourself a reasonable amount" What if paying myself 8$ min wage 19000$ per per year, and get a 50000$ loan from my business? Would that be possible? If i understand correctly loans are not taxable right? thanks

[@yerandysilva4815]

My wife and I are nurses. We work as self employed 1099. I could open a single member LLC and do S election. And they both work in the same LLC as an S corp. And that the 1099s are reported from both of them through the S Corp. Then the S corp generates w2 for each one and the dividends pass through K1 to the owner. Or each would have to open their own LLC and make S election. thanks

[@davidcresci1130]

Don’t quote me but u believe you can file a partnership (mmllc) as a s corp, please let me know if I’m wrong

[@tBone20082]

You can even put away little over $300,000 a year pre tax for retirement if you were up to that income level..

[@crownedclub]

In the S-corp example, what happens with the 60K? That would be left over for business profits, but would that not be taxed?

[@BrianAlvarez514]

I also had the same question.

[@RaleighRestorations]

No one ever answers this question

[@dexterrivera]

What happens with that $60K?

[@vule3157]

You need to sign up for the class to get the answer 😎

[@ronblack7870]

you can keep it with no extra tax. if you use it for the business then the business "owes" you that money. sometime down the line you can just take it with no tax. i know from experience . your company is profitable but you need to leave the money in the business. it becomes a capital investment in the company. in the future if you take the money you write yourself a check from the business account and it is just a drawing against the capital investment . so you are just taking your money back.

[@cameronillingworth512]

If you re-run the C-Corp with $100k taken as a salary by the owner, wouldn’t the S and C Corp be almost the same?

[@noshirtnel5281]

Why for the partnership you doubled the amount ? Instead of breaking down the numbers based off the same 125k in the rest and does this mean I can just divide all the numbers in half and use those numbers as a reference

[@h.jnguyen2939]

When comparing total taxes between Sole Prop and S Corp in Tennessee, the disparity isn't significant. Although S Corporations can potentially save on Social Security and Medicare taxes, they are required to file and pay Franchise and Excise taxes. The Excise tax amounts to 6.5% of net income, and the Franchise tax is 0.25% of the greater net worth or tangible property in Tennessee. In this case, Sole Prop may pay roughly $8,000 more in Social Security and Medicare taxes, whereas S Corp pay a similar amount for Franchise and Excise taxes. However, it's important to note that while Social Security and Medicare taxes contribute to your SSA benefits, Franchise and Excise taxes are not recoverable.

[@nathanc30]

I wonder what the math is though?. Later in life, the average American is only getting 42% to 28% of what you put into fica. I wonder if losing 6% while being aggressive in personal investing beats fica benefits? The people that start LLC, s Corp etc are middle and upper middle class mostly.

[@JW-rz5yv]

If you use a payroll company to deduct taxes what happens to the money they deduct does it get sent to the government right away or do you still have access to it ?

[@ronblack7870]

they take it from your bank account and it gets sent pretty much right away electronically .

[@explosives101]

Would it be possible to do one for $1M profits? And with only the bare minimum amount of "Reasonable Compensation". Doesn't SS/Medicare have a cap of $200K? I am very curious to see if the lower 21% C-Corp tax would work better at much higher income levels.

[@ronblack7870]

ss caps out but medicare does not . medicare used to only be on salary then they changed it so medicare is on all the profit in S corp. ss does cap out currently but politicians are always yacking about making it on all income.

[@user-vk4nj9nb4j]

Shouldn’t the dividend on the C Corp be taxed as ordinary income instead of capital gains?

[@NaviMarajCPA]

It’s a possibility depending on the facts and circumstances. Even more of a reason to not use the C Corp for small businesses.

[@keyneslonely1078]

what is the difference between solo and llc since they pay the same tax

[@misterj3133]

LLC is it's own legal entity, sole props arent.

[@tic1tac2toe]

What if you lost money I would like to see that across-the-board

[@kashjawed]

great video. Question: So if the S-Corp was to pay John the remainder of the $60k, the same math in column L would apply? Wouldn't that be apples to apples comparing to Sole Prop? Keeping the $ in S-corp isn't apples to apples vs. Sole Prop.? Am I missing something? What I am getting at is - who controls the funds in those scenarios. thank you!

[@ronblack7870]

you own the profits in an S corp. you can just take the 60k out of the bank or whatever with no extra tax. you have already paid the personal tax as an S corp. only trouble you can get into is the IRS can say you paid yourself too low a salary so you owe more fica taxes . social security max;'s out but the others don't. but you have to pay them as a S corp anyway.

[@kashjawed]

@@ronblack7870 thank you

[@85matticus]

So as an s corp what is done with the $60,000 since there is no taxes being taken from it?

[@NobleSpeedmotoworks]

That 60k stays in the business account and will not be subject to SE taxes since you aren’t claiming that as income. You still pay income tax on the 40k and 60k, only difference is not paying social security and Medicare on the 60k.

[@SuspiciousAccountBeepBoop]

@@NobleSpeedmotoworks OMG this is the answer I've been looking for. Thank you!

[@ronblack7870]

ny has an exception. if you are a manufacturing company a C corp you pay 0 state income tax for manufacturers. just a franchise fee which is not huge like 2k.

[@corinthiangroupsprivateinv3886]

Don't C-Corps offer more tax deductions? If a C-Corp has more expenses strategically, cant they pay significantly less in taxes? Why would anyone elect to have any significant profit in a C-Corp or most business structures? Nonetheless, great video. Very informative!!! Ty.

[@ronblack7870]

max fed rate in a C corp is 21% max S corp fed rate is 37% . so it depends how profitable you are and what you want to do. to grow the business a C corp lets you reinvest more profits instead of paying them in taxes. also depends on the state and what you do. in ny if you manufacture then no state income tax which is a huge break if you are profitable.

[@dongzilla1979]

Why isn’t the salary for Jon deductible against his 100k profit?

[@coreyfranco7060]

Because the profit is what is left AFTER taking the salary

[@ronblack7870]

if you own the building you are operating out of you can charge yourself rent . that rent is not subject to ss taxes .

[@jimross2101]

You should really clarify a landlord /rental business files a Schedule E and has no self-employment taxes. A house flipper files a Schedule C and does have to pay self-employment taxes on profits.

[@jeffreypgorman]

You don't want to file a schedule E. submit rentals on a K1. The IRS is checking schedule Es to catch landlords trying to cheat taxes. They aren't looking at K1s ....yet.

[@user-jj3qn8zx5j]

after watching your video Can i change my LLC to S crop

[@MrCreed145]

Someone told me I could write off my dogs food/medical if they are "Guqrd dogs"?

[@DMT4Dinner]

Why are you asking “right?” In your video. You’re the expert

[@jonblair5470]

Why is FIT so low for Sole Prop. $100k income for Single the FIT is $17,400.24. Anything over $95,375 has a base tax of $16,290. So how can it possibly be $10,064

[@jonblair5470]

So with the standard deduction and the QBI at 20%. I still got $10,470. Maybe you did QBI before standard deduction?

[@osricdrakon3465]

Video could have been better if you zoomed into the details

[@brewdog8568]

How come no one explains that if you don't pay FICA You don't get social security retirement. So by trying to hustle, the government saves money. You're hurting yourself later on when you can't work

[@HQSCJIPZ]

You should look up the “bend points” for social security. The first $1115 of average index monthly income has a great return on investment. After that, the rate of return of social security is quite poor.

[@nightterrors6262]

I’d rather invest my money than praying the government can pay me back.

[@xeroxboy01]

Social security is a freaking joke. Lots of way to invest. Index funds for one.

[@Roadyheid]

Assuming you invest the money you would have paid as FICA, almost any investment strategy has a better return than Social Security. In many cases, stuffing that money under your mattress beats Social Security returns.

[@coreyfranco7060]

Because 99% of everything on YT is BS

[@builderpj]

Taxes are voluntary in this country. You pay taxes out of fear and ignorance

[@Jabberneck]

****Show us how THEY turn mankind into PERSONS without our consent and meeting of the minds (to all the terms) that in some way makes it so we owe taxes to foreign corporations that are supposed to be working for us under contracts called Constitutions?!****

[@d.s.8733]

OR Move to Puerto Rico and pay Zero Taxes :)

[@zandiskoul]

If you paid medicare twice for two overlapping coverages of 1 person your a bad CPA...

[@LongStep]

Why did you not talk about C-corp putting 'revenue/profit' back into the company. You can buy capital investments (equipment, vehicles, etc) and end up with little to no 'profit' for the company which could take your annual tax rate to $20k in your example. There is little to no value for a company to have 60k profit so you can pay 21% on it. I know this was a 'basic' video, but you didn't even touch on the options.

[@sugeeshdeveloper5443]

So Winner. is SCorp, Could you please do a video about. Scorp against individual Tax. (1099 for like rideshare business)

[@UniqDon]

You know ur a real one

[@donaldthompson7705]

Thanks!

[@NaviMarajCPA]

You’re welcome!