Tax Difference between LLC and S-Corp - LLC vs. S Corporation explanation (FREELANCE TAX & 1099 Tax)

[@kdude2009]

I’m a corporate accountant in florida and this video is the best explanation on this strategy. Trust that I have searched KZbin and there is No video that explains this strategy in an clear and simple way with illustration and examples. Great job👍🏾

[@FeedbackWrench]

kdude2009 thank you - we’d love it if you’d help us share it and keep getting it on folks websites etc. thank you for the kind words

[@fernandoluis53]

He didn't explain why an S Corp doesn't get taxed federal for both personal and company. I'm more confused

[@alexanderdeltoro]

Ownage Zizou S Corp is “pass through”, unlike C Corp. it passes onto your personal income tax so it is not taxed at both the corporate and personal level, hence avoiding double taxation

[@stevenichols2605]

@@fernandoluis53 you only pay self employment tax on the income you report minus the distributions you take. Distributions are not taxed.

[@patcomx]

I Agree

[@carom3597]

I learned more from this video than I did from my incompetent CPA in 3 months. Thank you!

[@FeedbackWrench]

Carolyn M hahahaha love it

[@BTFOOMNY]

That is a little disturbing. Find a new CPA

[@BTFOOMNY]

@Ken MacDonald It's not that disturbing and you don't need to be a CPA. What has happened is that it has become complicated enough to require many hours to understand what you need to know for particular situations. This video is a perfect example. If you are an employee of some business, with a savings account, who rents his home, then this discussion is completely moot. If you need to learn more, you can read, or watch videos like this. I am a CPA. I know very little about government accounting, because I don't feel the need to know, but I can learn it if I need to. It's economic life these days.

[@peacethroughstrength172]

BTFoomNY, maybe but I doubt it. Itd take a very long time to make heads or tails of the tax regs and laws. This is simple and its the loophole to forego some S/E tax which is huge. Many dont believe it until you put the pencil to the paper and show them that instead of paying 40k this year youd of paid 26 if they had elected S. Frankly, Im surprised its still there but I guess many politicians utilize SubChp S..

[@viralvidsrepository4632]

I highly doubt your CPA is incompetent about this subject. He/she may not be as good at explaining the topic as this guy. Or, He/she may have prior experiences trying to explain accounting to you and concluded you were too dense to understand. As a CPA myself, I know of the extreme rigor involved in the exam process(to become a CPA). There is zero chance that your CPA doesn't know everything in this video and a ton (and I mean a metric shit ton) more. Trust me. And if he/she wasn't preparing your financials properly, it was due to laziness.

[@quincybaker4615]

Another thing to consider when deciding on LLC vs. S-Corp. When you create an S-Corp, this makes you an "employee" of the company. When applying for bank loans this can be beneficial, as you are submitting W-2's to the bank that shows how much you earn from the company "you work for", even if it's your own business. From a loan perspective, depending on what line of business you are in, this can look far less risky to the bank, than if you were presenting income earned via an LLC as a member/business owner in which case a bank could be more cautious of the income source. Yes, an S-Corp is a little more involved than an LLC (the primary advantage of an LLC - it's simplicity of structure and filing requirements), but if you're thinking of obtaining loans/lending from a bank/financial intuition down the line, an S-Corp could prove more beneficial.

[@davidlyash5217]

This video is awesome except the example with an S-LLC vs. single member LLC, because savings would not be as large as shown. When filing returns, half of $15,300 ($7,750), which is an employer-equivalent portion of your SE tax, is deductible in figuring your adjusted gross income on schedule SE. In the hypothetical example with $100,000 in profits, the actual savings would realistically be around $2,000. As for an actual S-Corp, not S-LLC, unless you are making a lot of money, having an S-corp could be unreasonable with costs often outweighing the benefits. Not to mention, that you would have to file your personal as well a SEPARATE quarterly forms 941, 940. Onerous, laborious, boring unless you have a staff CPA, accountant, EA doing this for you

[@CashNYC]

Smart thing to do is hire a payroll company to do the taxes for you & you're business. So that way you'll be paying taxes when u pay yourself

[@Nuancefinancial]

absolutely - great point. Nuance Financial actually does this. You're right when you say you should have a payroll solutoin. Which one do you use? A local company or like ADP, PAYCHEX, or something like that?

[@srplouque]

I use ADP

[@chokito44]

Nuance Financial Tax and Accounting i

[@deeznuts4747]

Cash_NYC that’s what I do one of my locals charges me 25 bucks

[@gabrielsalazar6648]

@@srplouque is adp the same of the company you use

[@dmc51194]

I was thinking of starting an LLC, but thanks for the help. I'm a junior entrepreneur. I'm about to start an online business in home design. This video really saved my life.

[@antioneenglish7416]

heads up. Under 30k LLC over 30K S-Corp wish You the best of luck brotha 🙌

[@AlexAK]

I just closed an S-Corp on an old business and had to open a new LLC for a new business. The main reason was having to pay payroll taxes. I don’t think it was covered in this fantastic video. I’m left with a question, would I still be saving more money with an S taxation if you take into account the payroll taxes?

[@FriedShrimpPoBoy]

Higher taxes for higher earning is punishment for success.

[@FeedbackWrench]

Yeah, seems like a bad incentive. I prefer consumption or flat taxes

[@MotoCzar]

Amen.

[@blognewb]

@wax lynchem that's dumb. Rich people hide it further by doing SOLO401K OR SEP. Even richer folks do tax haven.

[@cryptokiwi5520]

wax lynchem not any more. The last amendment changed that

[@cryptokiwi5520]

rp currey you obviously don’t own a company.. wonder why CEOs pay little to no tax? Deductions, depreciation, write offs and tax vessels. Many of these are very limited if you’re a W2 employee. Always best to be a business owner.

[@rachelchingka]

You did not mention federal/state unemployment taxes, minimum s-corp state taxes, and other things.... you should update the video with the latest tax changes

[@vijaysammy]

Agreed . You don’t have to pay the state and federal is it’s an s corp?

[@Filmthechannel]

This information is hotter than the strippers in Vegas.

[@Nuancefinancial]

We don't give you short-term, foolish satisfaction that leaves you frustrated....and broke.... we're more like a wise spouse that sticks by your side through thick and thin.... even when you go bald and gain 100lbs.

[@SpeedometerRepair]

We've definitely have been going to different strip clubs in Vegas.

[@adamfishermen7877]

Strip clubs are for losers ur paying money to girls I see them all the time when I walk😗😛

[@tominator3]

LOL

[@homegardner7366]

Knowledge is power

[@DavidSides]

Explained very well.

[@larrylucky6801]

Really appreciate this explanation. Very helpful!

[@Nuancefinancial]

Larry, Thanks for the encouragement. I hope that you'll be able to mitigate your taxes big time!

[@aumauanufe]

Larry Lucky v

[@FeedbackWrench]

Thanks Ian - let us know any other videos you might like to see

[@mbsbusinesscredit6345]

Very good video. The pace of your explanation was nice, not rushed or too quick to follow. The terminology was brought down to earth with easy to follow examples, like the pay check example. Nice work!

[@FeedbackWrench]

Well thank you!

[@MissPinkapples]

Great way to break it down. Good to know I can change my llc to an scorp ✅

[@angelaeast1895]

It was explained to me by a tax attorney that self-employment taxes does not apply to real estate investors with an LLC who are landlords making a passive income from their properties. Passive income is NOT subjected to self-employment taxes because you did not work for it. Thoughts?

[@FeedbackWrench]

It's just classified as passive...so no SE taxes... Nice little cutouts for investors.

[@angelaeast1895]

@@FeedbackWrench No complaints here. I'll take it.

[@freecheese4143]

The best explanation. I have EVER heard. And I know and have had several executives try and explain.

[@chadfoust6942]

Great video! I just finished The Total Money Makeover by Dave Ramsey and it's funny that you are an ELP. I should not be surprised that this is one of the best explanations I've seen on the topic. Keep putting out this great content, very very helpful

[@FeedbackWrench]

Nuance had to stop paying the Dave Ramsey fee -which means they lapsed their official Dave Ramsey endorsement as an ELP... but Nuance WAS an ELP at the time of this video.

[@garne2t]

Two important factors are left out. First costs. An LLC has an annual fee which, in California, is $800/year. Plus there are extra costs to file your tax return due to increase complexity. Second, filing as an S-Corp to reduce Self Employment taxes paid will reduce your social security benefit when you retire.

[@victorespino5650]

You're still paying into social security on the 60k of income. Plus with the savings put that into a personal IRA, you'll make more there than SS will give you. In this example there was a savings of like 5k. So yes minus 800 filing fee. 1.25% of net income of the scorp. Maybe 600 a year to run payroll, tax filing and book keeping let's say another 800 for this small company plus 300 for personal filing and another 150 for your minutes.. All in all let's say 3k in expenses, which are all writes offs. You'll still net save at least 2k. And paying yourself 60k on a w2 for 100k you can keep growing and easily keep that 60k w2 while making 200k total net, so you'll get 140k free of SE Tax. Then if you're single you can probably drop 25k into a sep and further reduce taxes!!

[@2awesome292]

You do realize how little benefit you get for the higher income levels right?

[@frankyg6906]

I wouldn’t get excited about social security. Use your cash in investments to retire

[@ClaudemirMartins]

OMG. Best explanation ever. So easy to understand... the vide, the voice, the speed, examples. Really awesome, thanks

[@itzKal]

I was excited about creating a company but finding out about NY's publication requirements really discouraged me from forming an LLC. It's an unnecessary obstacle since (a) it'll be online so posting it in two newspapers (1 daily; 1 weekly) for 120 days is redundant; (b) it's really costly - somewhere around $1,800. It's overwhelming....

[@FeedbackWrench]

itzKal bureacracy is the enemy of production. These super bureacratic states keep making it harder and harder to create value in the economy which only protects the existing cronies. It's too bad that NY is so concerned about choking the hen to get more eggs, rather than nourishing it with a friendly and anti-bureacratic environment.

[@MrPrediluted]

Other considerations for an SCorp....no real benefit for a passive activity (real estate investing), and no special allocations of income or distributions if you want to introduce new members. Once you are over the social security base one also has to keep in mind that it is a reduced benefit. There are definitely a lot of considerations as you mentioned, entity selections is certainly not a one size fits all scenario.

[@FeedbackWrench]

Kory Reynolds absolutely - good advice

[@SuccesswithLatoya]

So technically for an REI we should use S-corp for better breaks... Correct?

[@MrPrediluted]

lovej418 For a real estate investment where it is a buy and hold/rent property, I would probably do an LLC or similar and not an SCorp. By nature buy and hold real estate is normally passive and not subject to self employment tax no matter how it is held. An LLC also allows you to be much more creative with the operating agreement and how profit and losses are divided. Also with a partnership/LLC you can create basis with the debt in order to take additional losses - subject to various limitations. If it is a real estate investment where the goal is flipping or short term rental (ie air bnb), it would probably benefit from being an scorp, as income would almost definitely be subject to self employment. In the short term rental case I woulf take a hybrid approach - leave the real estate in an LLC, then have an scorp that pulls a reasonable management fees out of the LLC. Lowers the LLC income, but gives you the chance to protect some from self employment. Note that with any transaction like this, there must be a business purpose (ie seperate the liability of managing from the liability of owning) versus being the goal to only reduce self employment taxes. If your purpose is to wash the income of self employment status the IRS can throw it out. It isnt too difficult to establish a business purpose though.

[@SuccesswithLatoya]

Thats what I was thinking, my mentor has me doing an S-Corp for those reason, rentals and flipping. Some other Investors always do an LLC so I was confused on why when you can grab more benefits with and S-corp . I understand. THANK YOU!!!

[@MrPrediluted]

Long term rentals I would still do an LLC, short term and flipping SCorp all the way. I personally like 1 seperate entity for each property (for long term rentals /buy and hold) - a very large number of my clients do it this way. This is really just protection from a liability standpoint - ie if someone trips on a broken board on a porch amd break their back (extreme example), they might be able to sue the LLC that holds that one property, but as long as the integrity of the entity was maintained (ie you treat is as a seperate entity), they wont be able to sue and take assets outside that LLC - so your other properties are protected.

[@greasygemini]

Wow what a great simplified explanation I was referred to this site from a Physician group. Trying to get more info so I can understand the business aspect before I get an accountant

[@FeedbackWrench]

That’s really great! Glad it could help.

[@marybaker7638]

Thank you for breaking this down the way you did. I had this video open in one window and Legalzoom open in the other. Now I have a better idea as to what to do.

[@jamescrenshaw5097]

Explanation is well done. A couple of questions: 1) Isn’t half the SE tax deductible to the owners? So the benefit is not quite as large as depicted? And 2) Isn’t it possible to make a retroactive S election to the beginning of the year, after March 15, with IRS permission, rather than having to wait until next year?

[@FeedbackWrench]

Yes and yes.

[@eugenviscu7376]

Thank you so much!!! Finally after watching like 10 videos I found this one and understood the difference.

[@sethmohammad9924]

This Self employment is is there when you are a single member LLC which is considered a disregarded entity so you will file as a sole-prop. If you add one more member in your LLC than it is considered a partnership. Partnership is a pass thru entity like S corp and you pay taxes only on your 1040 or if you want to remain a single member than you can do an election to file as C corp or S corp

[@russelldixon5663]

Are you correct? At 2:14 you state that "After you hit the social security limit, all your earnings above that, you'll owe medicare taxes...". So, no medicare tax on an employee's wage until after $118,500.00 per year?

[@marinagajardo3775]

for clarity when you say s-corp you're actually referring to a S-LLC? and your video is great thank you.

[@Nuancefinancial]

Yes - LLC as a sole proprietorship OR Sole Proprietor taxed as a sub chapter s in this case. Both are LLC's for legal purposes, but the S Corp has a number of benefits when your net profits are great enough that your self employment tax savings would offset the energy and fees associated with keeping up with the formalities in your corporation.

[@lelecoq8434]

@@Nuancefinancial i want open a lawn care buy my self. Do you recommend llc or sole proprietor? If i decide to put my wife as employee , its better to chose llc or sub S? Thanks

[@owenluna3315]

Great job on explaining! So clear! Full of knowledge. 🙏

[@TheJosa007]

Much simpler and easier to understand could not be done. Thank you for helping me understand.

[@clint8u]

Very good ... looks like I’ll become and S Corp or open a single LLC and pay them from my multi LLC ... honestly I have no idea what I’m going to do .. such a PIA !... thanks for the video

[@jorgedominguez2256]

how is theft legal? shouldnt there be a limit to how much they can take?

[@anthony73125]

Qwerty uiop taxation is theft i always said it

[@borderty25]

I wonder how much they paid in taxes for all the money they make every year🤔

[@joeculpjr3028]

There is a limit! Its 15.3 percent. Careful what you ask for, Trump heard you!

[@fernandamadrona8943]

Thank you so much, your video offered excellent advice. I really appreciated the visuals (slides are better than people's faces sometimes), they are simple and not distracting, plus your voice is very clear. Thanks again

[@knowledgeapplied]

5:41 Is a "reasonable salary" ever considered "reasonable" by government standards, if it equals the actual post tax / take home / net pay earned, by a 1099 sole proprietor, from the past 10 years?.... Example: If I earn $75k per year, but after business expenses, I take home / net only $25k... is this considered a "reasonable salary" by their estimation, or do their "factors" (5:52) actually trump this factual logic (and common sense), in some way?...

[@Brabus8297]

don't forgot there are a lot of extra costs associated with an S-corp like 2 tax returns, payroll costs etc.

[@Nuancefinancial]

Brabus - that's a great point. You also don't want to become an S-Corp, only to convert away later. WE encourage people to "measure twice, cut once" and not to forget about the legal requirements. What we do at Nuance Financial Tax and Accountintg, is we roll Bookkeeping, tax planning, payroll, 1120s tax return, advice, and doing everything for you in a flat monthly fee. For small businesses, we're usually between $400-2500 a month depending on the scope of work. If you have a couple of employees, and one state, it's usually about $500 a month. The idea is that instead of hiring an accountant, having your spouse do it, or other nonsense, we serve as a subcontractor. Our clients love it, we get to do meaningful work, and it's been fun.

[@tacgrp]

S Corps have pass through taxation meaning you are only taxed once. C Corps had double taxation meaning you are taxed in the business as well as personal. The ONLY drawback of an S Corp over an LLC is that S Corps require annual meetings where as an LLC does not.

[@Voltzy70]

Dallas Alexander Annual meetings mean a vacation that is a write-off. Have your annual meeting in Hawaii or the Florida Keys. LOL

[@tacgrp]

I could be mistaken, but the only people who should be involved in annual meetings are the share owners and board members, not regular employees. Yes, you could have an annual retreat to have this meeting and write it off your taxes but when you are a lone ranger like I am, you are not legally allowed to write a vacation off as an annual meeting even if the purpose of the retreat for yourself is for the annual meeting. Most of my businesses don't take outside money or partner with people. I bootstrap and have a process now where I can build a company generating over $1m a year in the first 12mo as I have been doing it long enough. The only time I don't use my own money is when I see it as too big a risk or want to get big in the market and dominate it.

[@mlee9049]

Dallas Alexander - I'm not sure that I understand all the differences. What about an LLC that is taxed as an S-Corp?

[@DirtRoadAutoRepair]

Very interesting! Thank you! Eye opening how much tax the government. A little bit here a little bit there. A sales tax here. Property tax there. Suddenly I only have 40% of my money.....

[@BTFOOMNY]

and when you die, they want that, too.

[@DirtRoadAutoRepair]

BTFOOMNY well you’re dead what could you possibly need it for? Your kids will be fine. They don’t need any inheritance. We will take care of the them with our great government assistance programs that are so successful. The sad thing is that so many of us young people are falling for it. Smh

[@sumterblackchamberofcommer112]

Also to mention you can donate a large portion of your income to and nonprofit organization will will give you a great tax advantage as well

[@esperxecho4134]

Best explanation out there about the difference between the two! Definently a new sub thanks for this amazing video!

[@steverx4460]

In Australia, if you own a business, you pay yourself like any employee. The business then pays tax on it's net profit and you pay your normal income tax. We don't have separate state and federal taxes - just federal who then distributes some to each state. If your business made $60,000 after you got $40,000 it's pay about $12,000 and you'd pay about $10,000 in tax.

[@steverx4460]

@Ken MacDonald Wrong. Low paid workers aren't affected by tax.

[@BTFOOMNY]

@@steverx4460 WRONG! Low paid workers are screwed the worst. Let's say you earn a wage of $20,000. Depending on marital status, and children, you may wind up with zero INCOME tax, but you will pay $1,530 in Social Security and Medicare taxes. For someone who only makes $20,000, $1,530 is a hell of a lot of money.

[@BTFOOMNY]

@Ken MacDonald You are right, and you are wrong, Ken. Taking the same guy in my comment to Steve RX4, if you pay him $20,000, the business will have a $1,530 expense for the EMPLOYER'S share of Soc Sec/MCARE. It will also have between $100 and $200 in unemployment tax, workers compensation insurance, perhaps disability insurance, none of which can be charged to the employee. You also need a payroll service because messing up the payroll tax returns can be VERY expensive. Also, thanks to higher minimum wage laws, businesses are firing employees or going out of business at an alarming rate.

[@nadname5291]

From salary, as employer, we also pay FUTA and SUTA, and they are big enough, too.

[@thefunkybeat79]

I LOVED this video. Finally someone took the time to illustrate and spell this out for me!

[@FeedbackWrench]

We appreciate the feedback! We'd love it if you shared this to your social media, on your company website, or any other place! Trying to help more people clearly understand what options they have to keep MORE of their hard earned money.

[@liaoweien]

Thanks for the awesome video. If I have a S corp and have profit, Can the single shareowner take loan out of S corp and pay the S corp with reasonable interest (AFR) each year? By doing that, the shareowner does not need to pay tax on those profit sitting in S corp. Thanks

[@Driver_Eddie]

Thanks for the video ! Hypothetical... say that $100k net profit is reinvested into the business/ remains in the business account ... is that taxed? Or does that technically make it a business expense and it’s not a profit

[@Driver_Eddie]

Robert Satrom it’s taxed even though it’s sitting in the business account for future business expenses. For instance, say I have $100 in profits in my business account at the end of the year. If I don’t spend it, it will be taxed, even if it just stays in my account? But if I instead took that profit and bought $100 worth of office supplies I would have no taxable income ?

[@Driver_Eddie]

Robert Satrom thanks for the help btw !

[@34789199]

I just want to make sure I'm on the right path about my hair cutting S. Corp. I'm also about to start a cleaning business no clients at all I don't know if I should do LLC or Corp. To start

[@FeedbackWrench]

now, you'll need to get specific counsel... so we're not liable here... but my recommendation is usually to not really worry about the s-corp thing until you reach net profits of about 30k or so - unless you've got an inexpensive option to handle the requirements such as the 1120s tax return, bookkeeping, and the payroll. If you have that all down to an inexpensive system, then there's probably few reasons NOT to be an S-Corp. Remember, there are some drawbacks to S-corps that you want to be aware of. Also, if this inoome is discrectionary - meaning you dont NEED it (sorry if that sounds stupid) - you're self employment income from an LLC or S-COrp can be PERFECT to use in vanguard's SEP IRA or Individual 401k (assuming you have no employees) ALL THAT TO SAY - when you first get started, just go make money and hustle till you hit 30k AT LEAST, then start worrying about it more after that. Legally - get insurance to cover yourself. TheROckINsure.com is an indpendent group i really like.

[@memberinformation5888]

Proverbs 15: 1-3 A gentle answer turns away wrath, but a harsh word stirs up anger, the tongue of the wise adorns knowledge, but the mouth of the fool gushes folly. The eyes of the Lord are everywhere, keeping watch of the wicked and the good.

[@FeedbackWrench]

Great verse, what causes you to post that? Just spreading some good news?

[@willmann30]

Filth

[@jacquelinevulcano2215]

Thank you! This has been a great help!

[@Samrezzal04]

still helping people 3 years later!

[@demetriab335]

Thanks! Y’all made it so simple to understand!

[@youthlib2012]

Opening my S-Corp LLC in Texas to also save money on state income tax (no state income tax in Texas!)

[@springcleaning100]

Nice vid... C-corp with an "S" election is an "S-corp", LLC taxed as an "S" is a different legal animal...

[@tiakrittiya1647]

Question: Lets say the gross $100K from business is the only source of income. When it comes to taxable income , is it calculated from the $100K ? Or from what's left over from $100k minus 15% self employment tax ? In this video where do you get the number of 85,000?

[@cottondai]

Thanks for lesson on S-Corp payroll and distribution.

[@itsninischannel8461]

In 2018 I just open LLC ( 2 partner) USA residence, we just had expenses - but not income... just one transaction around 10k, as I undesrand i need to file 1065, (even I had 0 income) and for future is better to convert LLC to c- corp or s-corp

[@SonofSamhein]

Excellent: I have been desirous to begin a small business, myself; but, I do NOT desire to get hit in the face, by ludicrous taxation. Thank you, kindly...!

[@Thefunkeemonkee]

As a 1099 all I can tell you is that it is worth to pay a good tax preparer to pay the least on your taxes specially if you make 100k or more per year which honestly it is not much.

[@OahuGizzy]

I am starting a business. I would like to file as an S-Corp, how do I determine what my salary should be if the business hasn't generated an income yet?

[@dustinbasurto7371]

I'm interested in basically starting a garage brewery and ramping up into a local outlet, tasting room then brewpub. I intend to mantain operating control and grow organically. I've had some advice from local small business resources. Which is to start an llc. and use" liveplan" to draft a business plan. Can you give me any recommendations?

[@joshuabader8560]

15.3 percent minimum... the tea party revolted for less

[@FeedbackWrench]

Losing 15.3% of wages is a ton of money, especially when you consider what a dismal return you get on your medicare and social security. If a person earns an average of 70k a year, their payment to social security (12.4%) would be 8,680 a year, or 723/month. IF they do this average for let's say - 35 years, they will have a measly social security check in retirement. BUT - if they invested that 723/month for 35 years in a low cost index fund from vanguard, and averaged 8% a year, they would have an account totally $1,310,000. Do the math of what 30 years of retirement. Assuming that a 4.5% withdrawal rate would be safe, (investment earnings would be about 4.5% so the principle never goes away) - you'd be able to pull about 59,000 a year from an account that size. That would be replacing about 80% of your earnings... BUT Social security, as illustrated here www.fool.com/retirement/2016/11/28/how-much-will-i-get-from-social-security-if-75000.aspx , only replaces about 38% of your income...... and you have NO access to principle. The bottom line is that social security is a horrible return on investment, and the government has mismanaged it for decades.

[@ITILII]

"The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the prime reason for the Revolutionary War." – - Benjamin Franklin

[@gennaterra]

WE ARE PAYING FOR YOU TO BREED INBECILES.... SHOULD WE REVOLT FOR LESS?

[@andraeallen4410]

What if I switch from LLC to SCorp. And me and my wife and I are on payroll. The company grossed $200,000, and after deductions, the net is $150,000. Let's say I pay myself $60,000, and my wife gets paid $40,000. That left us with $50,000. How much would we have to pay in overall estimated taxes?

[@InventaChris]

I thought LLCs don't pay federal taxes... and ONLY you pay fed taxes, usually cap gains rate.

[@jpablo7879]

Question let's say I have a JOB, do I have to take a salary ?? Or can I just take distribution or better yet just put all gains back into the business ?? How would that affect the tax bill ??

[@ph_hacker_d]

Wow. Absolutely fantastic video! Offering so much value. Really appreciate it!

[@shockersteve70]

Great breakdown. Thank you for the info.

[@donttread5414]

Question: 1) Im a 1-person s-corp. What is my title? I refer to myself as "managing member". Is this incorrect? 2) For my S-corp Form 2553 I put "100%" for "number of shares or percentage of ownership". The IRS accepted it. Some say my S-Corp is defective as I am required to issue stock. Is this true? How do I remedy this?

[@givemetoast]

Very, very well done and clearly explained!!

[@sinmayp]

In your example scenario of taking 40Knas dividends those are subject to dividend tax in the range of 15-20% (based on ones individual tax bracket) aren't they? So what about the tax total paid on those? Do the numbers show that's Corp is better than an LLC?

[@FeedbackWrench]

Basically the only savings is the self employment tax of the distribution... Otherwise all money is subject to income tax at the federal and state level.

[@grantrennie]

Tax on distributions in the uk got to 52% at one point as a politician got pissed at bankers and changed the law, so the bankers paid themselves even more to cover this tax and a lot of business owners gave up as it was too painful

[@FeedbackWrench]

Why tax production, just tax consumption.

[@WraithDesignz]

With a insane %15.3 Self Employment tax, no wonder small business and entrepreneurs do not have much a chance unless they already have capital raised, good income as is, and some sort of sponsor or financial backing.

[@beblessed3770]

If you have an LLC and you file taxes as an s corp. When you're trying to buy a property, will they only be looking at the salary that you paid yourself?

[@jgoldsmith422]

On your example of 100k as an s corp. What do you pay on the remaining 40k? 15.3% on the 60k as income. What about the 40k of distribution? Thank you

[@gtgeek]

Would the S-LLC’s $40k dividend be added to say the $85k income tax in the earlier example? Meaning S-LLC took the $15.3 to $9.2. What happened the the $17k tax on the $85, does it become X tax on $85+$40?

[@saxonsoldier67]

Total tax bill would lower from 33 K to around 29 K. However, it costs more to establish a LLC with separate bank accounts and accounting fees. You might save a little bit more of your earnings depending on your own LLC expenses. This strategy works better the more money you earn.

[@labviewful]

Thank you so much for a great video, I'm a new investor/entrepreneur.

[@FeedbackWrench]

Jdondon that’s great, what are you getting into?

[@labviewful]

@@FeedbackWrench I'm getting real estate investment and potentially buying a few FedEx routes.

[@miloworkroom3371]

Hi, thank you for your video. What if the LLC is owned by a C-Corporation? In other words, what if the LLC is an Wholly owned operating company. Will the profit be distributed tax free to the parent company? I appreciate your response.

[@gilg3500]

Thanks for this very informative video. I have a question- Can you still be taxed at 15.3 % as an LLC S-Corp while having a full-time job with another company? Hypothetical Example… I have an Real Estate LLC S-Corp with annual income of $100,000, and a Registered Nurse salary for ABC Hospital of $70,000. How would this work?

[@thewhitefamily1464]

I am in the same situation and would like answers also.... have you had any luck finding out?

[@BW-kv9wj]

You will taxed at your personal income rate on the $70,000. You file two tax returns. A personal and a SCorp tax return.

[@guszam1036]

AND how much taxes will the owner pay from that payroll or "reasonable salary"?

[@DiscoverMVP]

Should I register my car under my uber llc business? Also should be llc, or s corporation?

[@kelseymann9479]

Great video. Question, if a businessman elects to go with an S-Corp in your scenario, pays himself a salary of $60,000, what happens to the $40,000 distribution? What is a businessman allowed to do with the leftover $40,000?

[@FeedbackWrench]

Kelsey Mann it all florws through to your personal income tax. It's called a distribution vs. salary, but as the owner, that distribution is just yours. You'll pay state and federal taxes on it.

[@kelseymann9479]

Where is the distribution reported on the 1040?

[@poohbear2441]

I heard from my CPA that if i change to s corp i have to pay 4-6,000 in tax fees to my CPA so she advised me not to do it until my net profit is high.

[@FeedbackWrench]

poohbear Check out our video called when not to be an S-Corp.

[@FeedbackWrench]

While you CAN get away with intuit payroll/QuickBooks solutions and the turbo tax pack - I find you’ll usually want an accountant and tax planner which the fees would be around there. Nuancefinancial.com has one of the best packages for it all and it’s a 500/month for small business package for payroll, tax return, tax planning , bookkeeping and financial administration help. So yeah - you’ll want to wait for net profits to be high enough where your tax savings outweigh the cost of bureaucracy

[@toddcenter55]

What is the value of Social Security benefits that you are giving up when your benefits are calculated at a lower wage base?

[@jemeljackson8737]

Great video so if you are starting your own trucking company with you being the driver which would be better for you LLC, or S Corp, I stay in a state we’re there is no state tax..

[@FeedbackWrench]

Again, highly dependent on your net profit projections. If the savings from the s corp offset the cost of doing the s corp bureacracy, then it's better to be an s corp

[@al1383]

That $40,000 “distribution”, is that the S-Corp owner writing himself a check at the end of the year? Or is it the profit that the business makes and that $40,000 stays in the business account? How does that $40,000 get into the owners pocket?

[@FeedbackWrench]

That's a great question, essentially all you're going to do is make sure that all your income and expenses go out of one account, and then run your necessary payroll out of that account. The distribution of dividend can just be money that you transfer out of the account without using the payroll system. Basically everything that you withdraw from that business account is your dividend or distribution. Again, talk to your tax professional..... But, that's usually how it works. Any money that you just take out ends up being the distribution or the dividend

[@al1383]

FeedbackWrench Got it, thanks.

[@Exposing21]

Ok so for someone like me who has a Shopify store. - LLC under S Corp - Hire myself (hehe) pay myself a “reasonable salary” then the rest goes to distribution. - Do as many legal write offs to save more $ *= winning*

[@FeedbackWrench]

Sounds right to me

[@vineelp]

hi sir, please correct me if i am wrong. savings in case of s-corp example is $510 before tax right. can we assume savings would be around $350 after taxes?

[@staly23o]

Thank you for the information. I don’t understand the distribution.. is distribution put in stock of the company?

[@aiymankhan7222]

Great video I couldn't understand it until I got to this video, 1 question, after self employment tax the rest left over in the S Corp is it taxed at the business level or is that free from any tax?

[@Nuancefinancial]

It flows through and you'll pay state and federal income tax on it.

[@converse67]

Thanks for the video. If I have a full time job making $80,000 a year and want to start a business with two other people, what entity do you recommend (partnership, llc, or S-Corp) especially in regards to tax savings? In other words, what will make me more money :)? Revenue may not be very high in the beginning

[@Greg3070]

I'm a little confused though. I recall self employment tax being 15. something % up to a limit of something like $10,000. then it was 2 or 3%. Maybe this was in days past, or being in California, or as a sole proprietor. it was the reason our company went corp C and went on payroll. It worked out better for the 3 partners involved.

[@BTFOOMNY]

this was in days WAAAAAAAAAAAAAAAAAAY past. The Social Security max wage for 2020 is $137,700. Then it drops to 2.9%.

[@glennthomasstudio]

This is phenomenal! And I'm sure this is a long shot but are you aware of the equivalent is for Australia?

[@jasonsmith830]

Great video. In this example, wouldn't the person with the LLC be able to put away more in their retirement/401K than S-Corp since LLC is showing more income than S-Corp?

[@Nuancefinancial]

If retirement planning is your goal, YES - you'd be able to do more in a SEP or 401k (I really like Vangaurds individual K or solo 401k) but you'd also be paying more in taxes. What I usually recommend is for people to just use a taxable account with tax sensitive funds in them, for all the additional saving you want to do. Vangaurd.com is pretty awesome for that.

[@Nuancefinancial]

(consult your own attorney and cpa - this is not legal or investment advice - but illustrations) I read your comment again, and I wanted to add that one thing a business owner can do is consider purchasing a building for the business. Own the building in a separate LLC (treated as a second company), you would need to use AFTER TAX money for the down payment, but then you would create a lease agreement between your s-corp and your LLC holding the property. THe S-Corp would then pay PRETAX dollars toward the property (you have to pay reasonable rates). You can continue to buy properties around the city to open up new branches. Many people would purchase a multi-unit building to do this - so that you have rents coming in and your s-corp paying the lease for itself. THe result is that the S-COrp can move money over into the building TAX FREE (the LLC holding the building would then pay taxes, but with depreciation, cost segregation etc, you can drastically reduce the taxes). Many businesses will do this as an alternative because their retirement plan contributions can be limited. THAT BEING SAID - if you have massive profits that need tax planning - chatting with a highly experienced pension company can help you shift hundreds of thousands of dollars as tax deductible contributions to fund a pension in the future.

[@CleitonSchneider]

Nuance Financial Tax and Accounting very interesting advice and feedback. I'm wondering If I can do that in the house I rent for living but have my LLC's office stablished in it. How could benefit from tax in this set up?

[@astrologya602]

Is this hybrid LLC possible for a Canadian citizen who lives in California but is not an American citizen neither a green card holder? Thank you. Another question: in the scenario of $100k net profit in this video, either LLC or S Corp, when working on federal and state personal tax, do both report the same $100k as income from the self-employed business? And what is payroll tax? I remembered reading somewhere that S corp must file payroll tax quarterly. So is that what S Corp needs to pay on top of self employment tax on the salary owner pays to himself? Thank you.

[@jonathanshmulovich6682]

Do you advise an S-Corp for someone like me who has made a very small income? Like in between 10 and 20 K? Because that self employment tax is still like 2 K!

[@FeedbackWrench]

No, I wouldn't do it. Instead, I would leverage a SEP IRA to shift 25% into an investment account . Besides that, the new 20% pass through deduction will help you as sole props benefit a little more. It's hard when you first start out!

[@jonathanshmulovich6682]

FeedbackWrench Thank you! I’ll look into this with my accountant?

[@FeedbackWrench]

Remember, if you have any employees, you must include them in the contributions. THat being said, the accountant is the last stop - Head over to Vanguard and open either the SEP IRA or their individual 401k. Then connect with him with your financial statement to determine what you can do for contributions. then make them. and finalize the tax return after that. If you aren't coming close to maximizing that 25% or 20%, you might just make a contrubution and then just head to the accountant. Again, I am not your legal advisor.... :) double check! (that's my disclaimer )

[@jonathanshmulovich6682]

@@FeedbackWrench Thanks a bunch! I will have to ask him, because I am basically work like an uber driver, but instead I teach English. Like an uber driver, I open my schedule whenever I want and get paid by the lesson. So, I will never really have much more monthly income than I do now, but still, maybe it can save me a few G's in taxes nonetheless. I will consider all your plans. I need to really know all my stuff because if I made more money than this, I could have missed out on way more massive savings. I appreciate your tips for sure!

[@dbank000]

Thinking of opening an llc with 3 people total. So if we stayed at a llc partnership, let's say we make 10k on a job, knowing that we have to pay 15.3% on personal taxes when we pay ourselves, how much of the original 10k do we need to hold on the side for other taxes? Is there a certain percentage? Is there any? Sorry if it's a dumb question I just really am not sure. From Texas If that matters.

[@alexhowell4473]

One of the best explained videos on this subject. Thanks for putting this up. Question, if I just started a LLC with a partner and we don't draw in enough net profit to actually cut each of us a "reasonable" salary, would that limit us from filing as a S-Corp? Also, How does the IRS see company percentage shares, is it based of how much one profits and/or manages?

[@FeedbackWrench]

Step 1, obtain profits. It really is just the net profit being high enough to merit splitting it.

[@alexhowell4473]

@@FeedbackWrench got it. Multi member LLC it is until we get to that magical number. Thank you!

[@Mario456SS]

Great video/information! Do you have a video on business property tax (not real estate property) but asset property? Thank you! I’ll be making a decision on what structure to use..

[@crystalpalacesamarkand52]

Very nice video ..Tahnk you .... . I have a question if you can help me out: , which type of company would be better for my new business , LLC or C-Corp ? We are starting a transportation business , by investing 150,000$ our own money and getting a loan 650,000$ to purchase trucks . We are aiming at making 300,000$ net profit per year . Tricky part that ownership of the company will be 80% by a foreigner (Nin-US_Resident) and 20% by a US citizen . We currently opened a new company in Maryland State , but I,m reconsidering and thinking of shifting my company to Delaware and opening a C-Corp . Can you advise if we should bother moving to Delaware and and opening a C-Corp , or shall we just do our business from Maryland as LLC , being located in another state for me is not an issue , I just want to choose an option where I would pay less in taxes as per the permitted law and will it be worth it for the profit that we are aiming at . I would really appreciate your advise . (300,000$ profit is just the revenue minus all the expenses , I have not included any asset depreciation or whatever the deductibles mean in this case) so maybe the profit would look less

[@granjmy]

This is an AMAZING video! Thank you very much!!

[@RobinP556]

How about liability? I have the training and would like to start a 1 man business as a gunsmith, someone that does repairs or custom work on firearms. Given that guns can be dangerous I want to insulate myself and my personal life such as house, military retirement pay, etc from any liability connected to the business.

[@Nuancefinancial]

Robin Patty I would imagine that setting up an LLC would be important for liability here, but I'm fairly certain that the majority of your risk mitigation is going to come from insurance and that will be tied to your ability to prove that you are obeying best practices. Wilen LLC does provide liabilityprotection, we insisted people realize that the entity will do very little to protect you compared to insurance. Legal contracts will also be extremely important in your case I'm sure

[@sudakara2388]

My Brand new LLC( Two memeber and not selected any thing special treatment ) did not make any Money for the last year so do I still need to file Taxes or it is not required ? My CPA is saying it is not required file taxes for LLC as it did not make business yet

[@arielle-cheriepaterson3317]

Is the S-Corp salary taken from revenue and the dividend taken from profits? It seems that in the video both are taken from profits. But, isn’t an employee salary taken from revenue?

[@FeedbackWrench]

Pretty much. The idea is to clearly show what’s happening from the business owners perspective about the simple tax consequences - not precise accounting procedure.

[@MrsEmeRodriguez]

My LLC and EIN were just approved. I noticed that the IRS page listed forms 2553 (for s corp status) and 8832 (entity classification election). Do I need to fill both of these out or just one? It seems you'd recommend the 2553 for s corp status. What if I only anticipate making $5-10k profit from October to December 2020? Do you recommend I wait?

[@FeedbackWrench]

Emely Rodriguez I would not be an s-Corp with that low, probably more messing around than you’ll want yet. But if you plan to be more next year, just get it done.

[@msheron]

But would you not agree that it is best to start as a LLC rather than a S-Corp if you as a business are grossing before a single owner draw(s) of $50k or less for the simplicity and as you grow in business gross income then look to file a an S-Corp? And the multiple draws or single draw a year a business owner under a LLC would take then would be done as a 1099 for filing on personal taxes???

[@sethmacomber3497]

Michael S The draws an owner takes on their business wouldn't generate a 1099. The draw comes directly from the net profit, which also means, you can only draw from your business if you have a net profit. You cannot draw if you have net income loss.

[@tacgrp]

Yes, you want to start as an LLC, then move to S Corp. Once your company files for an IPO or has more than 100 different owners or you need to issue both preferred stock and common stock, then you will need to go to a C Corp. Once you are being paid around $50k a year as an LLC, it is wise to switch it to an S Corp.

[@Nuancefinancial]

Start as a Sole proprietor - in fact, we don't usually recommend even forming an LLC unless you require legal protections. The reason why, is that IF you want to convert from an LLC to an S-COrp, when you suddenly start to get some profits meriting the conversion, you'll find that you would need to file the S-Election by March 15th (officially) If you didn't file by march 15th, you're technically at risk for not having all the profits before the conversion being treated as S-Corp. What we've found is that if you miss the deadline, the government RARELY disallows the treatment to be as an s-corp. That being said, for tax reasons, there are NO reasons to become an LLC, and case law has shown that LLC startups are usually on the legal hook regardless of their entity...... YES the LLC provides some legal protection, but it's usually your insurance, errors and omissions, etc. that protects you - not the LLC. We're not saying this is always the case, we're just saying that for startups- you're right! PURSUE PROFITS, start out as a sole prop, and don't worry until you achieve net profits higher than probably 30k-40k, that you will sustain... if you convert to an s-corp, than go back to sole prop, you cannot reconvert to an s-corp for 5 years. This means you want to "measure twice, cut once" with your conversions.

[@tacgrp]

I think it is better to start as an LLC first, then move to a Corp. NEVER use a Sole Prop. Some merchant account providers require you to be an LLC or a Corporation in order to do business with them. It gives you legal protection and even if you have a merchant account when someone looks at their bank statements it will say your name, not your business. The amount of paper work involved in an LLC is comparable to a Sole Prop. unlike an LLC. Also, an LLC does not have annual renewal fees, it is just a one time fee and costs about $50 to set up where as a Sole. Prop. costs around $35. LLCs also provide protection.

[@Nuancefinancial]

Dallas Alexander yeah - we would agree... definitely depends on the business and activity.